OK, Mark Tritton and the rest of the board have made peace with the latest round of investor interlopers trying to affect possible regime change at Bed Bath & Beyond. The last time this happened, three years ago, they essentially threw out everybody and started – restarted, actually — from scratch.
This time around Ryan Cohen, fresh from his cash-out at Chewy.com and his takeover of meme-stock darling GameStop, came in and rattled the BBB cages, demanding any number of changes, starting with seats on the board for his fellow supporters. Bed Bath bought some time – and possibly more – by placing three Cohen cronies on that board, with plans to eventually retire a like number of existing directors to keep the count straight.
Cohen’s wish list was quite aggressive, suggesting all kinds of financial and strategic changes, many of which were based on the premise that Tritton’s turnaround plan for BBB wasn’t working and it was time to re-restart from scratch. One of the more prominent suggestions was to spin off the BuyBuyBaby division from the parent company and monetize both its current operations and the potential for more.
When Tritton came on board he got rid of a lot of the peripheral distractions that prior management had accumulated, including WorldMarket Cost Plus and Christmas Tree Shops. Neither one was particularly a bad business it’s just that they required care and feeding beyond what the company could afford as it focused on its namesake banner.
But they did hold on to the Baby division, saying it had great value now and in the future. And they were right. With the demise of Kids R Us, it was the only national big box specifically focused on the juvenile and kids market and even as the birth rate has been dismal for the past few years there was still business to be had.
BuyBuyBaby – it was founded by a son of the original Bed Bath founders – was, like most of those secondary brands under the old management, underdeveloped and when Kids collapsed it did not get the surge in expansion that an aggressive company would have realized was a no-brainer.
Under Tritton, it has gotten more attention but still he and his senior leaders are trying to concentrate on the mothership which, to be honest, has to be disappointing in its performance so far to those inside and outside the company. A bigger Baby push has been talked about but so far we haven’t seen it.
Cohen thinks it’s worth a lot more as a spin-off and he could be right. While there are certainly symmetries between the two brands, the BuyBuy unit could stand on its own without too much maneuvering.
But who do you sell it to? Going public is not usually a great plan for any retailing company, much less one that needs some serious investment. Most retailers who are sold these days are bought by private equity firms who saddle them down with extra debt, special dividends and fees paid out to shareholders and a general lack of inspirational merchandising leadership. The third option is to sell to another retailing company but most large corporations in the space are shedding secondary banners and aren’t interested in taking on a new fixer-upper.
None of these options are really in the best interests of BuyBuy Baby as a retail business…even as they could present financial windfalls for its current owners. We’ve seen this story too many times and we all know how it usually ends
Which is why Bed Bath should do everything it can to keep the Baby unit, albeit with the firm understanding that it’s time to step on the gas and build this sucker out. Turning around two retail nameplates at the same time is no easy trick but I’d say Tritton and his group have as good a chance of making the baby unit work as any outsider.
Hopefully Cohen and the new board members will see it this way and not look for a fast cash-out. If there were a viable alternative that made sense that would be another story…but there isn’t.
This is not the time to throw out the Baby with the Bed Bath & Beyond water.