From Overstock to Bed Bath & Beyond Inc. (BBBYQ): What Investors Need to Know

After months of scrambling for survival and frantic efforts to stage a turnaround, the struggling omnichannel retailer of domestic merchandise and various juvenile products, Bed Bath & Beyond Inc. (BBBYQ), succumbed to gravity earlier this year. Despite securing a financing deal on February 7, it filed for Chapter 11 bankruptcy protection on April 23.

With Holly Etlin, a longtime retail turnaround expert and a partner and managing director with advisory group AlixPartners, at the helm, BBBYQ set about liquidating assets by committing to close all of its Harmon FaceValue stores while keeping 360 namesake stores and 120 Buy Buy Baby locations open and filing motions in New Jersey bankruptcy court asking permission to auction the two brands.

However, since Buy Buy Baby, often considered a crown jewel of BBBYQ’s portfolio, was garnering the most attention and interest to unlock maximum value, BBBYQ, in a rare move, chose to run separate sale processes for its two chains. According to the company, a different method was selected to find a bidder willing to keep the banner’s stores open without the headache of taking on the assets of the namesake stores.

On June 21, online retailer, Inc. (OSTK) won the auction and agreed to buy Bed Bath’s intellectual property and digital assets for $21.5 million. However, the deal does not include keeping the chain’s brick-and-mortar presence alive.

Moreover, the sale price is the same as OSTK’s stalking horse bid on June 13, indicating Bed Bath didn’t receive higher or more attractive bids.

On the other hand, Buy Buy Baby, which sells baby clothes, furniture, and other goods, had courted attention from buyers even before BBBYQ threw in the towel. Consequently, since the sale began, the chain had interested buyers, such as retail investment firm Go Global and online registry platform Babylist, with the former even considering keeping its physical footprint alive.

However, given the rising costs (including leases, overhead costs, and salaries) and waning interest in keeping Buy Buy Baby’s stores open, BBBYQ decided to split the auction process further to secure a higher bid price.

On June 29, Dream on Me, a little-known baby retailer based in Piscataway, New Jersey, which sells cribs, strollers, and other baby goods through a host of retail partners, tentatively won the auction with a bid price of $15.5 million for the intellectual property, business data, internet properties, and mobile platform.

The Aftermath

OSTK, which acquired Bad Bath’s intellectual property assets but opted out of acquiring stores and inventories, has decided to change its website name by moving under the Bed Bath & Beyond domain name in the coming weeks.

The website, post its rebranding, has been relaunched in Canada. This is expected to be followed by a rollout of a website, mobile app, and loyalty program in the U.S. “weeks later.”

OSTK has also been suffering from a shift in consumer spending from discretionary household purchases to out-of-home experiences, such as traveling and dining out. According to its earnings release for the first quarter of the fiscal year, the online retailer reported revenue of $381 million and a net loss of $10 million.

However, given that OSTK has still managed to surpass estimates and the rebranding post the Bed Bath & Beyond acquisition is expected to lift its sagging sales, the stock has popped nearly 5% after it won the auction. As a result, the stock has gained 33.1% over the past month and 55.5% year-to-date.
According to OSTK CEO Jonathan Johnson, “The combination of our winning asset-light business model and the high awareness and loyalty of the Bed Bath & Beyond brand will improve the customer experience and position the Company for accelerated market share growth.”

Regarding Buy Buy Baby, Dream on Me’s win for the former’s intellectual property is only tentative. However, the cancellation of the July 7 auction for the chain owing to the failure to secure a buyer willing to keep its stores running means that Dream on Me Industries is in the pole position to secure its ownership.

Road Ahead for BBBYQ

BBBYQ has been the victim of inflationary pressures and online retail altering brick-and-mortar stores in today’s economy, resulting in widespread store closures, as we discussed in our posts on May 25 and June 14.

According to Neil Saunders, a retail analyst and consultant who works as managing director of GlobalData, “If there is a single point of failure of Bed Bath and Beyond, it’s that the company stopped being relevant to consumers. Arguably, this goes back a long way, thanks to the rise of online and the improvement of home offers at rivals like Target. Against this increased competition, Bed Bath and Beyond’s approach to retail – which lacked inspiration – was found wanting.”

After the acquisition of both its brands and associated intellectual property, which were together valued at $13.4 million but have individually fetched more than double the amount, BBBYQ is left with its employees, empty stores, leases, and leftover inventory.

Any firm willing to take over will likely have to shut the stores down for a couple of months to restock and get them back up and running. Hence, without qualified and interested buyers, the leftovers appear to be more liabilities than assets.

Moreover, BBBYQ had loans with TJP Morgan Chase & Co. (JPM) and Sixth Street that were reduced in late March after its second stock offering was announced. At the time, its total revolving commitment decreased from $565 million to $300 million, and its revolving credit facility was reduced from $225 million to $175 million.


OSTK seems to have derived the maximum value from a distressed sale of an iconic brand.
However, with significantly greater debt to service than proceeds from the sale and its once-instrumental physical assets still weighing it down, BBBYQ seems to have got the short stick in the bargain and is unlikely to have any residual value that could make holding on to the stock worthwhile for its shareholders.