Bed Bath & Beyond's digital transformation: Turnaround plan features heavy dose of Google Cloud

Bed Bath & Beyond is racing to develop its digital efforts and is looking to Google Cloud's analytics and data services to give it a boost.

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Bed Bath & Beyond, which is in the middle of a turnaround and shift to digital sales, is betting that Google Cloud's analytics tools can play a big role.

Google Cloud said Bed Bath & Beyond will use BigQuery for machine learning and analytics so it can create an omnichannel shopping experience. Bed Bath & Beyond will also use Google Cloud to optimize its fulfillment strategy.

Deloitte is serving as the migration services partner and integrator.

For Google Cloud, the Bed Bath & Beyond account is interesting since the company is spending roughly half of its capital expenditures on going digital. Bed Bath & Beyond was struggling before COVID-19 and named Mark Tritton CEO in October 2019 to turn the company around. 

Bed Bath & Beyond is showing some omnichannel shopping momentum. In its second quarter results, Bed Bath & Beyond reported same store growth of 6% with digital channel comparable growth of 89%. The retailer also delivered second quarter earnings of $1.75 a share reversing a loss from a year ago on revenue of $2.7 billion, down 1% from a year ago. Non-GAAP earnings were 50 cents a share. 

Tritton said the company's second quarter "reflects the potential of our digital first, omni-always transformation" under a new leadership team.

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In December, the retailer announced, "extensive changes to its leadership team." That headline turned out to be an understatement as Bed Bath & Beyond saw its chief merchandising officer, chief marketing officer, chief digital officer, chief legal officer and general counsel, chief administrative officer, and chief brand officer leave the company. Those roles were filled in the fiscal first quarter ending May 31.

A turbulent 2020

Tritton's turnaround plan revolved around refining the retailer's product assortment, winning back customers, optimizing pricing, and deepening customer relationships. Tritton also plotted a course to revamp Bed Bath & Beyond's technology infrastructure after the company struggled during the 2019 holiday shopping season due to poor inventory management, non-competitive pricing, and the lack of features like buy online and pickup in store.

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Developments in 2020 included:

  • Bed Bath & Beyond outlined a restructuring program in February to simplify management, remove redundant roles, and outsource several functions.
  • The retailer outlined plans to sell PersonalizationMall.com.
  • The company closed most of its 1,500 stores due to COVID-19 in March and built out delivery and e-commerce for essential items from its Harmon and Buybuy Baby stores.
  • It reported a fiscal 2019 net loss of $613.8 million on revenue of $11.2 billion, down 7.2%. Fiscal 2018 ended Feb. 29. Bed Bath & Beyond also suspended dividends, postponed store remodels, and renegotiated payments terms for goods, services and rent, but had $1.4 billion in cash and investments.
  • In May, Bed Bath & Beyond still had stores closed, but expanded store fulfillment services, contactless pickup and expanded buy online pickup in store to half of its locations.
  • Bed Bath & Beyond reported an 82% surge in online sales for quarter ended May 30, but first quarter revenue was down 49% to $1.3 billion due to store closures. The company, which had a first quarter net loss of $302.3 million, said digital sales were two-thirds of total revenue. Tritton said in July:

Digital growth was also favorably impacted by the way we pivoted our merchandising and marketing plans and how we engage with our customers, including more frequent updates through our website to stay current and relevant. A key highlight for us was the strong growth we saw in new customer acquisition through our digital channels. Nearly 40% of our online orders were placed by customers who are new to ordering online with us, and over 10% of them were also completely new to Bed Bath & Beyond.

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  • On Aug. 25, the company announced it would cut 2,800 jobs and save $150 million a year. The savings will in part fund omnichannel efforts, private brands and transform the supply chain. 

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Digital transformation

Bed Bath & Beyond has gone digital in a hurry and clearly has more work to do but has enjoyed some buffer amid spending on homes. With remote work and education, consumers are spending heavily on home improvements and goods. Home Depot and Lowe's are two primary beneficiaries from spending on the home along with Wayfair.

As a result, Wedbush analyst Seth Basham said the company is turning the quarter. Basham said:

Clearly, many do not believe in this potential transformation, arguing that comps are only positive because of an unsustainable coronavirus-related demand surge and that Bed Bath is a beleaguered home goods chain of 1,000 antiquated stores that has already become irrelevant in the eyes of consumers and is simply a melting ice cube. We beg to differ.

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Basham argues that centralized buying, private label goods, direct sourcing and a digital model that utilizes stores for fulfillment and returns can generate nearly $850 million in EBITDA in 2022.

"While no retail transformation is linear, we expect this story to build with the company's fiscal second quarter earnings report on Oct. 1, followed by a mid-late October analyst meeting road mapping the forthcoming transformation," said Basham.

Meanwhile, the company is investing. In regulatory filings, Bed Bath & Beyond said it will spend $250 million on investments in digital and strategic growth plans for fiscal 2020. Key areas of investments include search and navigation across digital channels, data integration, CRM, analytics, marketing, and e-commerce. During fiscal 2019, Bed Bath & Beyond also spent about $187 million on logistics, digital capabilities, and analytics.

Google Cloud's role in Bed Bath & Beyond

Retail is a key vertical for Google Cloud and should Bed Bath & Beyond thrive it'll be quite the reference as the cloud vendor competes with Microsoft Azure. Google Cloud and Microsoft Azure are targeting retailers since they're unlikely to support Amazon Web Services given the rivalry with parent Amazon.

Bed Bath & Beyond said it will use Google Cloud's BigQuery, Spanner, Google Compute Engine, and Google Kubernetes Engine to create "a singular view of customer data."

Tritton said that Google Cloud has shown "true partnership" from the beginning of the transformation and is getting more wallet share with the help of Deloitte. Google Cloud landed Bed Bath & Beyond as a customer at the end of 2017.

The go-forward goals for Bed Bath & Beyond revolve around:

  • Projecting future sales trends and targeting customers in real time.
  • Optimizing demand prediction, inventory, and merchandise planning.
  • Building a predictive e-commerce platform using Google's AI and search to create experiences.
  • Using Google Cloud to enhance supply chain logistics.
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