Illinois residents who follow business and financial news will probably be aware that Bed Bath & Beyond came close to fining a Chapter 11 bankruptcy in January. The company escaped that fate because it managed to negotiate a $1 billion bailout package. The deal was completed on February 6th, but many experts believe that it will not be enough to turn around the fortunes of the beleaguered retailer. That is because the borrowed money will be used to pay off existing debts and not invest in new stores and merchandise, and borrowing money to pay debts is not a sustainable business model.
When Bed Bath & Beyond’s CEO announced that the loan package had been completed, she spoke about growth and a return to profitability. However, there was little to be optimistic about in an SEC filing submitted by the company on the same day. That filing stated that Bed Bath & Beyond planned to close 150 stores and cut overheads by $ billion. Before the filing, the company had announced that 400 locations would shut their doors. Less than a week after the filing, Bed Bath & Beyond announced that would be pulling out of the Canadian market.
Few analysts predict a rosy future for Bed Bath & Beyond, and many believe that a business bankruptcy is inevitable. Online retailers like Amazon and big-box discount stores like Walmart are attracting customers that once shopped at Bed Bath & Beyond, and there is little evidence to suggest that this trend is temporary. Linens ‘N Things has already filed for Chapter 11 bankruptcy, and Bed Bath & Beyond may have to do the same before the end of the year if it runs out of money. The company has received $225 million in loan funds, but the rest of the money is tied to performance objectives and is not guaranteed.
Doing the same thing
What was noticeably absent in Bed Bath & Beyond’s turnaround strategy were plans to expand into the online space and open discount stores to lure back some of its lost customers. Companies that respond to financial difficulties by doing the same things that got them into trouble in the first place rarely succeed, but this seems to be Bed Bath & Beyond’s plan.