Bed, Bath & Beyond’s Rapid Propagation of Private Brands

One of retail’s most dramatic private brand buildups is occurring at Bed, Bath & Beyond — and it’s happening fast.

BB&B expects that within three years private brands, or what the company refers to as “owned brands,” will represent 30 percent of its business, up from the current 10 percent. This year alone at least eight owned brands are being introduced simultaneously with efforts at eliminating product redundancies and unproductive stock keeping units, remodeling stores and closing others.

In March 2020, Joe Hartsig became executive vice president and chief merchandising officer of the Union, N.J.-based BB&B. Hartsig is also president of the Harmon Stores division of Bed, Bath & Beyond Inc., which operates beauty stores under the names Harmon, Harmon Face Values and Face Values. Hartsig had been senior vice president and chief merchandising officer at Walgreens and earlier held senior-level jobs at Walmart and Motorola. Among his priorities is to revitalize the merchandising, curate it better, and orchestrate the owned-brand buildup, working with Neil Lick, senior vice president of owned brands. Tritton has called the owned-brand buildup “the most significant transformation of our product assortment in a generation.”

Private brands require long lead times, up to a year from development to hitting store shelves and websites. Retailers must hone their design, trend forecasting and marketing skills and supply chain logistics, and educate consumers on the virtues of brands being introduced. But owned brands fill merchandise voids, generally yield better margins than market brands, and differentiate the retailer’s assortment from competitors. They can be game changers for retailers, like Kirkland at Costco, Hotel at Macy’s, or AmazonBasics. A year ago, Target launched Casaluna, a collection of more than 700 bedding and bath items with natural and sustainable materials like linen, hemp, silk and cashmere.

“We are excited to start fresh in 2021 with our sharpened size and scale, a healthier portfolio of core banners and a stronger financial position to execute the first phase of our three-year transformation journey,” Hartsig told WWD in an interview.

In the following Q&A, Hartsig discusses progress in the owned brand portfolio and the philosophy behind the strategy.

WWD: Why was Nestwell launched and how is it different from what BB&B has been selling?

J.H.: Our strategy is customer-inspired and data-driven, so we are constantly looking for ways to ensure that our assortment and presentations infuse newness, relevancy and trends that will resonate. We have built a comprehensive category line review process, starting in our destination categories, covering 40 subcategories, and analyzing thousands of brands and SKUs. This has allowed for the necessary space to introduce our owned brands, as well as introducing and refreshing meaningful national brands. We will continue to employ this discipline throughout all of our categories in the months and years to come. The frequency with which we will employ our line reviews and seasonal refreshes changes depending on the needs of the business. Categories that are more seasonal, like outdoor, or trend-focused, like fashion bedding, will be refreshed multiple times a year. Others, like consumables, may be less frequent. We will overlay this with a cadence of newness throughout the year when we have new product and owned and national brand introductions.

WWD: How much better are the margins in owned versus market brands?

J.H.: As we built our owned brands, we expect to further enhance our gross margin as a result of being able to strategically design to cost and source at scale. We are on track to deliver $200 million to $250 million in sourcing benefits within the next three years.

WWD: Besides Wamsutta, what other brands will be narrowed or dropped entirely?

J.H.: We’re focused on rebuilding authority in destination categories by creating a more inspirational and productive assortment by resetting our product offer. As mentioned, we are employing a comprehensive line review process that is data-driven, and it has identified areas where we were either over-assorted or had gaps in our assortment. Using sheets as an example, we found that 30 percent of our items were redundant, irrelevant, and unproductive, and we’ve cut that out. Within that reset assortment, we’ve added back newness, 20 percent, where we’ve filled assortment gaps and broadened relevant items and brands.

As another example, we are discontinuing 20 percent of total core SKUs and 68 percent of total brands in kitchen housewares to improve quality and drive value. For bath towels, we are going from more than 100 brands to keeping just 10 percent of them with an emphasis on owned brands.

WWD: What kinds of products and categories are selling best?

J.H.: In the fourth quarter, sales in our top five destination categories collectively grew 12 percent, with four of the five categories posting double-digit comp growth, with the exception of bath. The bath category was impacted by a planned assortment transition in preparation for the launch of our new owned brands, which resulted in higher category markdowns and temporary out-of-stocks. Early in the first quarter, we already saw the category return to solid growth.

With more at-home working and dining, there was continued strength in the kitchen and food prep category, which grew 16 percent in the quarter. Air fryers and toaster ovens were standouts, showing strong growth of 70 and 60 percent, respectively. We also achieved success in the home organization category, which grew 17 percent in the fourth quarter. In home furnishings, indoor décor was strong with comp growth of approximately 16 percent.

WWD: Are any new categories being added or considered?

J.H.: We are highly focused on doubling down on our home destination categories — bedding, bath, kitchen and storage and organization. At the same time, we are reducing our category emphasis on areas that don’t necessarily serve the home, as well as regional merchandising that is not productive or on brand. We also believe that the health and beauty area is a significant opportunity. We offer this in select stores, but think there is a great opportunity to enhance our assortment, improve the shopping experience, and expand our distribution across our fleet as we remodel our stores.

WWD: What kind of research preceded your decisions to build up your stable of own brands?

J.H.: The work started with the customer. We identified five key customer segments — nester, juggler, minimizer, innovator and creative — and developed assortments designed to appeal to each. In addition to deep analysis of the competitive landscape and market opportunity, we conducted in-depth research across these key customer segments (including segments in which we have under-indexed historically) to learn about their design preferences, shopping behaviors, and how their homes make them feel and to build assortments inspired by and designed for them. As we further engage in the growth segments in our customer base, we may identify gaps in the assortment and will use that to help determine where we should add to the assortment, whether owned or national brand product.

WWD: How is the turnaround going, and in terms of merchandise, what inning are you in? Beyond the rollout of new private brands this year, what’s planned for 2022?

J.H.: We have spent considerable time overhauling our assortment, focusing first on our destination categories. We had a very fragmented assortment, with misalignment between store and digital assortments, and a very low owned brand penetration relative to competition.

As our transformation continues to take hold, we will show up differently for our customers with enhanced omnichannel experiences and modern stores, new communications and differentiated owned brands that will elevate the shopping experience and make it even easier to shop with the new Bed Bath & Beyond. We are very excited about the store of the future efforts we started in our Watchung store (which is in New Jersey and is merchandised around rooms rather than classifications and has more open sight lines) and have now rolled out to the Houston market.

As for 2022, we expect the upward trend and growth to continue as we listen to customers’ needs and transform the company both digitally and through our store remodels to create sustainable, efficient growth.

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