Over the past few years, online retailer Amazon (
) has grown at a tremendous pace, which has proved threatening for
a number of physical retailers in the U.S. Many retailers have
found it difficult to compete with Amazon due to its low prices,
increasing showrooming and the convenience of online shopping.
While Best Buy (
) and Target (
) were believed to be the biggest victims of Amazon's
showrooming, Bed Bath & Beyond (
) turns out to be the most-at-risk retailer according to a Placed
study. In this analysis, we take a look at how Amazon threatens the
home goods retailer and how it is fending off the competition from
the online giant.
Since Bed Bath & Beyond is a specialty retailer, it offers a
greater variety of products compared to Amazon. It leverages its
decentralized management culture to effectively respond to
different regional needs, resulting in better customer service.
Even without its 20% discount coupon, Bed Bath & Beyond's
products are often cheaper than similar products on Amazon. Apart
from offering attractive products at competitive prices, Bed Bath
& Beyond is also investing in its online channel which is
currently at a nascent stage. As the retailer maintains its
strength on the aforementioned fronts and continues to grow its
online business, it will be well equipped to dilute the growing
threat from Amazon.
Our price estimate for Bed Bath & Beyond stands
, which is slightly ahead of the market price.
See our complete analysis for Bed Bath &
The Amazon Threat
Online retail giant Amazon has emerged as a threat to a number
of retailers in the U.S. with its rapid growth and showrooming.
Showrooming refers to the phenomenon where shoppers visit physical
stores to find products, compare their prices on different websites
and buy them online. Amazon offers and promotes free mobile apps to
encourage its customers to compare prices of various products while
walking in different stores.
According to a survey conducted by a Seattle based startup
Placed, Bed Bath & Beyond faces the greatest risks due to
showrooming, even more than Best Buy and Target. The
research was based on the responses of close to 15,000 Amazon
customers who have checked products from nearly one billion U.S.
location data points. This study ranked Bed Bath & Beyond
at the first position in the list of most-at-risk retailers as
Amazon's showroomers are 27% more likely to visit a Bed Bath &
Beyond store. David Shim (CEO of Placed) stated that unless the
brick-and-mortar retailers go proactive, Amazon will remain the
winner in the e-commerce channel. According to Simon-Kucher &
Partners, a global consultancy firm, product categories that have
lower purchase frequency and higher need of touch such as
furniture, home furnishing, decorative items, health and beauty are
the next in line for the online vs physical store
battle. Therefore, we believe that Amazon poses a serious
threat for Bed Bath & Beyond.
Bed Bath & Beyond Is Well Positioned To Fend Off
Although Amazon's showrooming is threatening for Bed Bath &
Beyond, we believe that the home goods retailer is well equipped to
remain competitive against the online retailer. Being a specialty
retailer, Bed Bath & Beyond offers a greater variety of
products that might not be easy to find in any other store or over
the Internet. Since customers shop for home furnishing products
occasionally, the quality, variety and shopping experience become
important. Bed Bath & Beyond's decentralized management culture
enables it to better serve its customers by offering products in
accordance to regional tastes. This culture leverages the
knowledge, independence and customer focus of the store associates
to respond efficiently to market demand.
Bed Bath & Beyond also enjoys pricing advantage over the
online giant, which makes this threat less imminent. An analysis by
BB&T Capital Markets (investment firm) found that a basket of
30 comparable items was about 6.5% cheaper at Bed Bath & Beyond
as compared to Amazon. What's interesting to note is that the home
goods retailer's prices are lower even without its 20% discount
coupon. According to BB&T analyst Anthony Chukumba, Bed Bath
& Beyond's prices are lower than Amazon's on a daily basis, and
it is not an exclusive strategy to beat the online giant. Moreover,
many customers prefer to physically see the home furnishing
products before buying them, which makes Bed Bath & Beyond a
viable shopping destination.
The Company Is Also Developing Its Online
Bed Bath & Beyond's online business is very small,
contributing just 1%-2% to its overall revenues. However, this
channel is quite important for the retailer given the optimistic
outlook of the online retail industry. According to eMarketer,
online sales for furniture and home furnishing products will almost
double by 2016. The company appears to be making some valuable
efforts including the launch of new websites and omni-channel
retailing to take advantage of this growth.
Bed Bath & Beyond launched new websites for its namesake
during the second quarter of fiscal 2013. It also replaced their
back end and customer facing systems to make them more efficient.
Moreover, it is planning to enhance network communication in its
stores and upgrade mobile websites and apps. The retailer is also
working towards improving its point-of-sale system as well as the
growth and development of IT analytics, marketing and e-commerce.
Bed Bath & Beyond is in the process of building, equipping and
staffing its IT data center in North Carolina, which will support
its overall IT systems. We believe that the effective execution of
these strategies will allow the company to tap the tremendous
growth potential in online retailing and better compete with Amazon
on the latter's turf.
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