Bed Bath goes beyond $2 billion mark in sales

Retail Editor 3, Carole Sloan, June 11, 2001

The year 2000 was the one in which Bed Bath & Beyond clearly expanded its domination of the big-box specialty retail format with sales that soared well past the $2 billion mark — $2.4 billion.

The company widened the gap between itself and all other competitors with a year-end performance that saw sales jump 29 percent, earnings escalate about 31 percent and store openings continue at its rapid pace in 2000 with 70 new superstore units opened and the expansion of two others.

And Bed Bath clearly is not holding back in its expansion objectives, noting that it could nearly triple the number of stores over its present inventory.

In a management discussion of its future, the company sees potential for more than 850 stores in the United States, "and we continue to explore other profitable growth opportunities including international." One of this year's new stores will mark the company's debut in Puerto Rico.

The company also indicated that "a predominant portion of any increase in its net sales in fiscal 2001 will continue to be attributable to new store net sales."

Additionally, management noted that its share of the approximately $75 billion home goods market is under 4 percent, "which continues to afford us substantial expansion opportunities."

Comp sales for fiscal 2000 increased about 5 percent, compared with fiscal 1999's comp sales increase of about 9.2 percent.

While co-founder and co-ceo Leonard Feinstein last year called the year-earlier expansion "the most aggressive in our history," last year's sharply accelerated pace compares with the 55 new stores opened in 1999, and the 45 new units opened in 1998. Four units were expanded in 1999, and three in 1998. At the end of fiscal 2000, the company operated 311 stores in 43 states. New to the company's state roster were stores in Rhode Island, Maine, Mississippi, North Dakota and Idaho. The superstores range from 13,000 square feet to 103,000 square feet but are predominately 30,000 square feet to 50,000 square feet in major markets.

In fiscal year 2001, the company anticipates opening at least 80 new superstores, of which, as of May 1, five have already opened.

Interestingly, Bed Bath's sales ratio of home textiles to its other home goods has held constant over several years, with the textiles segment contributing about 55 percent of the total. Similarly, bed linens continued to contribute about 21 percent of total sales, the same as in fiscal 1999 and fiscal 1998. As in past years, no other product category accounted for more than 10 percent of total revenues.

As other retail entities continue to tighten corporate control, especially over merchandise procurement, Bed Bath continues to reaffirm its early commitment to a decentralized organization.

Field personnel, the annual report explained, begin their company careers on the sales floors and are trained to be entrepreneurs and merchants.

In line with this, the company has continued to have local store personnel responsible for monitoring inventory levels and reordering merchandise.

Advertising also is somewhat contrary to industry norms, with Bed Bath relying more on word of mouth, and a low-cost advertising policy, which is supplemented with full-color circulars and mailing pieces as its primary vehicles of paid advertising. To support new store openings, both "grand opening" full-color circulars and newspaper advertising are used.

As a result of its decentralized operating system and a low reliance on paid advertising, Bed Bath sees a flexibility to enter markets with only one or two stores.

Contrary to trends emerging in all retailing channels, Bed Bath purchases only a small amount of its merchandise directly from overseas sources. Its largest supplier accounted for about 7 percent of its merchandise purchases, and the 10 largest of the company's more than 2,800 suppliers accounted for about 28 percent of all merchandise purchases.

Although gross margin percentages declined slightly, to 41.2 percent or $986.5 million, compared with 41.3 percent, or $766.8 million, the prior year, both operating income and net income soared 30.3 percent and 30.9 percent, respectively. And SG&A expenses slid a bit down a bit to 29.8 percent compared with 30.0 percent the prior year.

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