Wall Street Journal
By John Jannarone
There is a wet towel hanging over Bed Bath & Beyond.
The home-furnishing retailer's shares surged 10% Thursday after it reported stronger-than-expected sales and profit the previous evening. The investor response was exaggerated in part because of expectations that tougher price competition would hurt Bed Bath.
But now is no time for investors to let their guard down. For one, the company has surpassed its peak sales efficiency from the boom. In the just-reported fiscal 2010, the company had $254.50 in sales per square foot, compared with $247.20 in the year ended February 2007, says Matt Nemer of Wells Fargo.
In a way, it makes sense for sales efficiency to be higher today, given that archrival Linens 'N Things was liquidated in 2008. With much of Bed Bath's business coming from people after they buy a new house, the benefits of that reduced competition could last a while as more Americans start to move again.
But as Best Buy has discovered, the Internet has led more shoppers to seek out the lowest prices, whether at brick-and-mortar retailers or online stores. That is especially troubling for Bed Bath because its website has been slow to take off. While Bed Bath is one of the country's largest retailers, its website ranks 154th in e-commerce, with about 1% of company sales, estimates trade publication Internet Retailer.
Costs also are a worry. Bed Bath often has suppliers ship directly to stores rather than to distribution centers. While that allows Bed Bath to grow more quickly, it is harder to cut sourcing costs to keep up with Wal-Mart and Target. As shoppers compare prices more closely, the Linens 'N Things boost mightn't be enough to keep Bed Bath shares supported.
