- Bed Bath & Beyond is in the early stages of a three-year, $250 million supply chain overhaul.
- Right now it takes more than a month to get product into stores to replenish empty shelves.
- The company is bringing in new talent, technology, and logistics providers to cut that time by 70%.
- See more stories on Insider’s business page.
Bed Bath & Beyond needs to get home goods to stores when they need it.
That may seem like it should go without saying in retail, but it hasn’t for a long time — and the company’s efforts to carve out a new place for itself in the competitive home retail market depend on it.
The retailer has been working with a logistics model UBS analysts once called “primitive.” Today, when a store places an order for a product to replenish an empty shelf, it arrives around 35 days later — ages in today’s speed-obsessed retail environment.
But Bed Bath & Beyond is going through a makeover of sorts. It’s shaking up its product offering, leaving behind the old look of stores crammed from floor to ceiling for a more streamlined appearance. It’s also embracing private label by developing eight exclusive, in-house brands to boost profits.
The success of all of that new product rests on the retailer’s ability to get the products to the right store in a timely manner in the first place.
“It’s critically important that we improve the domestic replenishment timeline,” COO John Hartmann told Insider, just after the company reported a 6% year-over-year growth in comparable sales for the fourth quarter of 2020. CEO Mark Tritton said Q4 was the third-consecutive quarter of growth “after years of decline.”
Pandemic spending on home improvement has boosted Bed Bath & Beyond and its competitors, so improvement to the supply chain could also help maintain growth as the category cools off.
“[Bed Bath & Beyond’s] replenishment windows are long, out-of-stocks high, delivery accuracy uncertain, vendor partners redundant, and supply chain costs excessive,” Jeffries analysts wrote Wednesday. “Investments will make the framework more centralized and agile.”
Tritton and his so-called “Avengers of Retail,” which include Hartmann, have recognized that the stores need to get leaner and the supply chain that fills them needs to get faster. They’ve pledged to reduce the 35-day replenishment time to less than 10 in just three years with a $250 million investment.
To do this, the chain will outsource store logistics to a third party and open four new distribution centers. The first two are on the way on the East and West coasts — one will open before holiday shopping season this year and the other in 2022. The company put out a request for proposals last year and is in the final stages of selecting a logistics company to run them.
Redesigning how products will flow from port to warehouse to store is an immense and complicated task, and Hartmann is leaning on new personnel and new technology to get it done.
The company hired Juan Guerrero as senior vice president of supply chain solutions last year. Guerrero has done time in senior supply chain roles at Starbucks, Office Depot, and Bloomin’ Brands, where he also managed a period of transformation as chief global supply chain officer.
The overarching strategy, Hartmann said, is to attack the problem from multiple fronts at the same time, so that as soon as the new logistics network is up and running, the team knows exactly how best to use it. The company’s new owned-brand Nestwell, for example, is rolling out with the old supply chain, and executives are planning for it to flow through the new one as soon as possible.
New artificial intelligence-based inventory management tools will help the company send the right products to the right store before customers want them, along with other key upgrades to supply chain software fundamentals. The company is evaluating automated technology for warehouses that aren’t open yet.
“We’re actually already advanced in our ability to quickly establish those first two distribution centers.” Hartmann said. “So we’re thinking in days, weeks, and months. We’re not thinking in years.”
The COO is attempting to turn the big ship that is Bed Bath & Beyond’s supply chain just as it’s getting harder to find space on actual ships to ferry products from Asia. Freight markets from trucks to ships have been tight for months with historical high rates and little sign of relief. Plus, port congestion at major US ports is starting to spill over and clog smaller ones.
Freight inflation took a significant bite out of the company’s profit margins in the fourth quarter, and Hartmann thinks that’s unlikely to change soon.
“We have our eyes wide open on the freight headwinds and we believe it will continue to have some impact throughout 2021 and into 2022,” Hartmann said. The strategy is to anticipate these higher costs at least through the end of the year and negotiate more favorable rates with carriers — a process in progress right now.