Bed Bath & Beyond was destined for the dustbin of history until a new CEO took over the helm. The company was bleeding badly as many of its 1500 stores were being closed. The big question is when a company as large as Bed Bath & Beyond is in trouble, can any one person make a difference between imminent demise and success? Simply put, can one person save a company?
To be sure, the big box store chain can blame Covid-19 for its woes. Almost all its stores were shuttered while stores like Wal-Mart and Target stayed open. It was somehow not deemed “essential”, and the chain was effectively shut down. Although its stock dropped recently by 9% after showing some life, investors are still skittish about its future.
The sudden dip in stock prices came after the company stock surged by 11%, in great measure due to its new CEO, Mark Tritton, who had such great success at Target. One of his first moves at his new job was to oust six senior executives. Tritton is a successful marketing man which is why some of the first people he expunged were Bed, Bath & Beyond marketing executives who he probably blamed for the company’s woes. At his previous jobs, he was particularly adept at merchandising and at being creative when adding new lines or through line extension.
But Bed Bath & Beyond has had to adjust to the new world where its competitors were not the stores next door but the likes of Amazon. He was very successful at Target and also had stints at Nordstrom, Timberland and Nike. As successful as he was at these well-known retailers, many of them adjusted to dealing with the Internet, either by aggressively pursuing the on-line business themselves or by successfully fighting off the competing well-known sites.
One strategy Tritton will likely emulate from his days at Target is to grow Bed Bath & Beyond’ s private labels and exclusive brands, which was credited for $1 billion in new sales in his old job. He obviously knows how to design a store and how to merchandise. Tritton is an example of one executive who can turn around a company. I obviously have a soft spot for marketing people, but it seems that many companies that were made profitable after a long period of losing money were able to do so at the hands of a marketing executive.
Making a key personnel move is not the only way companies turn around their fortunes. Mergers are often used to consolidate facilities and rein in costs. Other companies resort to trimming back the scope of their print, like closing many stores.
AT&T decided to spin off WarnerMedia, merging it with Discovery to form a new media and entertainment company likely worth well over $100 billion. This move comes less than three years after closing such a large transaction. Some companies actually turn themselves around by an acquisition of a company that can deliver a product or service more efficiently and at a better cost. This gives them an alternative to their model and allows them to shed costly features of their company. For example, an acquired company might have a modern plant that operates with far more efficiency. On the surface, it seems that an acquisition is taking a company in the opposite direction, but a closer look shows that it makes financial sense.
What is interesting is that while profits used to be the imperative that defined a company’s success or failure, some of the best-known iconic companies have yet to turn a profit. You might often wonder why seasoned investors would throw money at a company that is consistently losing money. One good example we all know is Uber who continues losing money. What is keeping them in business is their “potential” for growth and investors who believe that this potential is more valuable than a high-profit margin — even though they are still losing money. Investors are gambling that despite the way the company looks on paper, there will be a big payday down the road.
Airbnb, founded in 2008, has raised a total of $4.4 billion in funding, but is operating at a loss. Yet, the company that turned the hospitality industry on its head continues to chalk up huge losses. Airbnb is an example where the promising future defines it rather than profits. It went public last December, and its stock immediately soared. Yet, the vacation rental company’s operating losses more than doubled in the first quarter of 2019 compared to the previous year, with a whopping $306 million in losses. The spike in losses was due in part to increased investment in sales and marketing. The company had also been spending more on product development, and operations and support.
Like Uber, competitor Lyft is also in bad shape but not because of anything but a faulty model. Perhaps a new senior executive would figure out how to get income to outweigh expenses. With a valuation of $24 billion at its IPO, stocks opened at $72 a share. The stock value has dropped significantly since then, with the current value hovering around $45. Experts say that the business models for both companies may be flawed. In 2018, for example, its operating costs were nearly double its gross profit, amounting to a net loss of $911.3 million. Uber, which can take credit that it revolutionized travel and the way people get around, admitted in 2019 that it might never make a profit. Every businessperson knows that expenses can not outweigh income and that is what is happening to these transportation companies.
Is it possible for one key person to turn around a company? Yes, the evidence has shown that it is possible, witness what happened at Bed Bath & Beyond. A company needs to define the source of its problem and then to find a person who has been there and solved it. Ironically, we live in a world of experts. Even when a company wants to liquidate it needs to hire a liquidation expert.
It is not easy for a company to experience a comeback after it sustained such huge losses like some of the companies we discussed. But a key person with a great deal of experience and a fresh look can save a company. I have seen that happen time and again!