Bed Bath & Beyond Inc. History

Company Perspectives:

Bed Bath & Beyond strives to provide a large selection of items and superior service at everyday low prices within a constantly evolving shopping environment that is both fun and exciting for customers. Key Dates:

Key Dates:

1971:

Feinstein and Eisenberg establish Bed 'n Bath.

1985:

Seventeen stores operate in New York, New Jersey, Connecticut, and California, and the first superstore is opened.

1987:

The company's name is changed to Bed Bath & Beyond.

1991:

Sales reach $134 million.

1992:

The firm goes public.

1994:

Electric appliances are added the store's product offerings.

1999:

Sales exceed $1 billion.

2000:

The firm grows to 311 stores in 43 states.

Company History:

Bed Bath & Beyond Inc. operates the largest houseware goods specialty stores in the United States. The company has a chain of over 300 stores that sell such domestic merchandise as bed linens, bath accessories, kitchen textiles, cookware, dinnerware, kitchen utensils, small electric appliances, and basic home furnishings. Throughout the company's short history, bigger has proven to be better. In the mid-1980s, Bed Bath & Beyond was a pioneer in the concept of superstores: large, well-stocked specialty shops with prices allegedly comparable to, or lower than, department store sale prices. Some Bed Bath & Beyond stores have over 80,000 square feet--the average is 45,000 square feet--of selling floor and offer more than 300,000 different items, stacked literally from floor to ceiling. The company expanded rapidly in the early 1990s on the strength of the superstore concept. Store count continues to grow at a rapid clip and in 2000, the company recorded its eighth consecutive year of record earnings. The $1.8 billion company has operations throughout the United States and plans to continue opening new stores to support its goal of doubling its earnings every three years.

1970s Origins

The driving force behind Bed Bath & Beyond was the partnership between founders Leonard Feinstein and Warren Eisenberg. Both men possessed over a decade of retail experience in 1971 when they formed Bed `n Bath, a small chain of specialty linen and bath shops in suburban New York. As employees in management positions at Arlan's, a discount chain that fell on hard times during the early 1970s, the two sensed an essential change in retailing trends. 'We had witnessed the department store shakeout, and knew that specialty stores were going to be the next wave of retailing,' Feinstein told Chain Store Executive in 1993. He added, 'It was the beginning of the designer approach to linens and housewares and we saw a real window of opportunity.' Bed `n Bath's first two 2,000-square-foot stores were located in high-traffic strip malls and carried such brand names as Cannon, Wamsutta, and Fieldcrest, as well as a line of lower-priced linens and bath towels.

During the 1970s, Bed 'n Bath expanded at a healthy pace, and by 1985 the chain had grown to 17 stores located in New York, New Jersey, Connecticut, and California. During this time, however, a number of similar bath and bed specialty shops had opened. What had begun as a niche market was growing increasingly competitive as retailers sensed a 'cocooning trend' among baby boomers. Specialty chains such as Linens `n Things, Pacific Linens, and Luxury Linens sprang up to tap into this new market. Feinstein and Eisenberg opened their first superstore in 1985, in an effort to set themselves apart from the sudden wave of competition that had appeared.

The new superstore was revolutionary in a number of ways. Over ten times the size of Bed `n Bath's original shop, this 20,000-square-foot outlet offered a comprehensive line of home furnishings in addition to Bed `n Bath's traditional linens and bath products. While most department stores and specialty shops offered only a few select brands, Bed `n Bath's superstore offered seemingly every possible color, style, and size of each product. Until this time, most independent home textile retailers either copied department store merchandising techniques or followed the mundane merchandising style used by discount retailers. Eisenberg and Feinstein did neither. Bed `n Bath, along with chains such as Toys `R' Us and Blockbuster Video, became pioneering 'category killers': large specialty retail outlets that beat their competition by offering virtually every possible product in their specific category at everyday low prices. Other than semiannual clearances to reduce inventory, the company never held sales. They claimed that their prices were already lower than other stores' sale prices.

Expansion Under a New Name: Late 1980s and early 1990s

In 1987, Eisenberg and Feinstein changed the name of their organization to Bed Bath & Beyond in order to more accurately reflect their superstore format. By 1991, Bed Bath & Beyond had opened seven new superstores in New Jersey, California, Virginia, Illinois, Maryland, and Florida, and expanded two existing stores into the superstore format. Sales reached $134 million that year, generating earnings of $10.4 million. Eisenberg and Feinstein funneled the revenue back into the company.

The company's success was considered unusual for the home products industry. As one analyst said, Bed Bath & Beyond 'took a less than strong category and made it important.' It did so by making ordinary household products seem exciting, even romantic. Customer service was an essential part of this marketing strategy. The company strove to build word-of-mouth by advertising through a unique combination of family atmosphere and attentive customer service. Both management and sales personnel worked the floor, arranging merchandise displays, helping shoppers carry products, and otherwise making themselves useful. According to Fortune, even Feinstein and Eisenberg would gather on the floor on Saturday, to 'tidy merchandise and ... pick up bits of litter.' Check-out waiting time was reduced by increasing the number of cash registers, and the company developed a policy wherein, if the store was out of a desired product, Bed Bath & Beyond would deliver it to the customer's home, free of charge. Due to this strategy, Bed Bath & Beyond was able to keep paid advertising to a minimum. The company often saturated the market with advertising when a new store opened, then successfully relied on word-of-mouth to keep customers coming in.

Another important aspect of Bed Bath & Beyond's success was its merchandise layout. Related product lines were grouped together, giving the impression that the store was 'comprised of several individual specialty stores for different product lines,' according to company literature. To encourage impulse buying, seasonal products and other impulse items were arranged up front; further back, products were grouped on enormous vertical displays that reached to the ceiling. Such arrangements were designed to make it easier for customers to locate product and also to reinforce the perception that Bed Bath & Beyond offered an enormous assortment of goods.

Feinstein and Eisenberg also took an unusual hands-off approach to management. Bed Bath & Beyond employed no vice-presidents. Instead, store managers were given autonomy to cut prices to meet local competition or to try new marketing plans with the consent of the district manager. Within each store, new departments could be created and existing departments could be expanded or reduced as needed to respond to marketing trends.

This decentralization approach permeated all aspects of Bed Bath & Beyond's management. The company had no central warehouses. Goods were delivered directly to stores, where they either entered on-site inventory areas or went directly to the floor. This greatly reduced inventory costs and also gave store managers greater control over the flow of goods through the store.

These management strategies provided Bed Bath & Beyond with one of the retail trade's strongest return on sales during the early 1990s. Out of every $100 in sales, Bed Bath & Beyond retained $7.36. The company's growth soared in the early 1990s, fueled by its ability to tap into hot marketing trends. Between 1989 and 1993, Bed Bath & Beyond increased its number of stores from 24 to 38 in 11 states.

Going Public in the Early 1990s

Bed Bath & Beyond went public on the NASDAQ exchange in June 1992, trading at $17 per share. The company immediately became a Wall Street favorite, fueled by a rush of media coverage and the successful launch of a new Manhattan store. Analysts noted that, given the popularity of the merchandising concept that the company was championing, the timing to go public was ideal. By May 1993, shares were trading around $32 as the company announced record sales for the year: $216.7 million in sales, with earnings of $15.9 million.

As proof of Bed Bath & Beyond's status as a trendsetter, one needed only to examine the success of its Manhattan store. The store opened in November 1992, in what had been an abandoned, graffiti-covered department store at the heart of a dismal section of the city known as Ladies Mile. At the beginning of the 20th century, Ladies Mile had been a booming retail center, revered as the place where upscale, fashionable ladies bought their clothing. By 1990, despite its desirable location in the center of Manhattan, the district was a mess. When Bed Bath & Beyond opened, however, it kindled a renaissance of the neighborhood. Within a year, a number of other superstores, including Barnes & Noble books, Today's Man menswear, and Staples, a discount office supply chain, had also renovated boarded-up old emporiums. Bed Bath & Beyond added 30,000 more square feet to the store and it became the company's flagship store, a site where new merchandising concepts (such as a café and the introduction of gourmet food products) were given trial runs.

While Bed Bath & Beyond enjoyed tremendous success during this period in the home furnishings business, competitors sought to erode the company's standing. In the early 1990s, its primary rival, Linens `n Things, began blatantly imitating its merchandising format. Supported by Melville Corp., a large conglomerate whose financial resources far outstripped Bed Bath & Beyond's, Linens `n Things operated a chain of 144 stores by 1993 with annual sales around $290 million.

Linens `n Things, which had utilized an integrated computer system since the late 1980s, enjoyed a tremendous advantage over Bed Bath & Beyond in the inventory management area. In 1993, however, Bed Bath & Beyond installed integrated computer systems in all stores that allowed managers to track inventory, sales, and receivables more efficiently. The new automated system also enabled the company to develop a chain-wide bridal registry that analysts estimated would add another 15 percent to annual sales.

Luxury Linens and Pacific Linens also posed a threat to Bed Bath & Beyond's attempts to venture into new markets. Still, the company enjoyed a 37 percent increase in sales in 1992 as it continued to grow without benefit of acquisitions. Most competitors, on the other hand, relied on expansion through acquisitions to a much greater degree. Sales in the first six months of 1993, increased 43 percent and earnings improved by 47 percent, garnering Bed Bath & Beyond first place recognition in the Chain Store Executive survey of high performance retailers.

In 1994, the company began offering such small electric appliances as coffee makers, hair dryers, toaster ovens, and vacuum cleaners. Other home accessories like gourmet foods, clocks, and lamps were added to the product line as well. This further broadened its customer base and fortified the chain's edge in the retail market.

Continued Success the Mid- to Late 1990s

Entering the mid-1990s, Bed Bath & Beyond noted that none of its competition offered the diversity of products it sold. Moreover, no competitors were able to achieve the profit margins registered by Bed Bath & Beyond. By 1997, Bed Bath & Beyond planned to have approximately 100 stores across the United States, and Feinstein predicted that company sales would rise by 30 to 35 percent by that time.

The proliferating number of imitators, however, had created what Barron's called 'a treacherous environment requiring astute management.' Analysts feared that the market would be saturated by the year 2000 and that perhaps Bed Bath & Beyond's impressive earnings had already peaked. They noted that by 1994, Feinstein, Eisenberg, and members of their respective families had sold almost five million shares of the firm--in 2000, they each both owned 5.1 percent of the firm. Nevertheless, Feinstein and Eisenberg remained the driving force behind the company.

As Bed Bath & Beyond entered the late 1990s, speculation that the company's earnings would suffer was brought to rest. Despite analyst's fears, the firm recorded record profits and earnings. In 1997 and 1998, 61 new stores were opened, exceeding company goals set in the mid-1990s. Bed Bath & Beyond also purchased an interest in Internet Gift Registries and began e-commerce on its web site.

In 1999, the company surpassed the $1 billion mark, recording its eighth consecutive year of record earnings. Growth also continued, as 45 new stores were opened that year. During this period of rapid expansion, 85 percent of a store's square footage was dedicated to selling space. The continued practice of eschewing a centralized warehouse enabled the company to open stores in any area it wished. As it had in the past, inventory was shipped directly to the store and piled from the floor to the ceiling. Utilizing this method in the late 1990s, the company was able to secure some $208, per square foot, per store, a rate 17 percent higher than that realized by competitor Linens 'n Things.

Positive Outlook in the New Millennium

As Bed Bath & Beyond entered the new millennium, it operated over 250 stores and had expanded into Rhode Island, Idaho, Maine, Mississippi, and North Dakota. With no debt--the company utilized cash flow for expansion--the firm's stock consistently grew since its launch in 1992 and analysts predicted its growth would continue. In July 2000, the company announced a two-for-one stock split. Bed Bath & Beyond's success was apparent as the firm ended the year with over $2 billion in sales and a store count of over 300 in 43 states.

Its discount prices, warehouse merchandising style, conservative advertising budgets, and highly successful web site helped secure record earnings and profits for the company, and management anticipated similar results in the future. The firm planned to open 80 new stores in 2001, a total of 2.4 million square feet. With co-CEOs Feinstein and Eisenberg--the pair reportedly spoke on a daily basis and were the executors of each other's estates--at the helm of the 30-year old company, Bed Bath & Beyond's continued success in the future seemed evident. Feinstein commented on the strong relationship with his co-founder in a 2000 Forbes article stating, 'there aren't many good marriages out there, but when you've got one of the great ones, it's wonderful.'

Principal Competitors: Linens 'n Things Inc.; Target Corp.; J.C. Penney Company, Inc.

Further Reading:

• 'Bigger Stores, Bigger Profits Boost Bed Bath & Beyond,' Chain Store Executive, November 1993, p. 21.
• Kroll, Luisa, 'Bed Bath & Beyond Happy Together,' Forbes, January 10, 2000, p. 156.
• Lieber, Ed, 'Warren Eisenberg, Leonard Feinstein; Bed Bath & Beyond,' HFN--The Weekly Newspaper for the Home Furnishing Network, November 27, 2000, p. 42.
• Munarriz, Rick A., 'To Infinity and Bed, Bath & Beyond,' Motley Fool, February 22, 2001.
• Norton, Leslie P., 'One Step Beyond,' Barron's, August 8, 1994, p. 17.
• 'A Retail Odyssey,' HFN--The Weekly Newspaper for the Home Furnishing Network, January 1, 2001, p. 10.
• Shoulberg, Warren, 'Way Beyond,' Home Textiles Today, September 6, 1993, p. 1.
• Slesin, Suzanne, 'It's Fun. It's Romantic. It's Soap and Dish Towels,' New York Times, November 16, 1992, p. C1.
• Zaczkiewicz, Arthur, 'Bed Bath & Beyond Beats the Odds in Q3,' HFN--The Weekly Newspaper for the Home Furnishing Network, December 18, 2000, p. 4.

Source: International Directory of Company Histories, Vol. 41. St. James Press, 2001.

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