Bed Bath and Beyond: 1985 - The Year Home Furnishings Retailing Changed Forever
September 16, 2010,
By Warren Shoulberg
It is perhaps ironic that the number one movie of the year was "Back to the Future," because in many ways the future of home furnishings retailing was forever changed in 1985.
When Warren Eisenberg and Len Feinstein, who had started their modest domestics specialty retailing operation 14 years before and had barely surfaced on most industry radar screens, added a whole new dimension--not to mention a third alliterative word to their store name--it was a historic moment, indeed.
It was the year Bed Bath went Beyond.
Twenty-five years later, Bed Bath is unquestionably the dominant specialty home retailer and one of the biggest overall sellers of home furnishings products in the country, with annual sales approaching $8 billion. With the demise of Linens 'n Things two years ago, there is no other player in the space that's even close.
But a quarter of a century ago, the specialty channel was very different and teeming with regional players and it was by no means certain which if any of them would endure.
Virtually all the home specialists were grounded in the soft-home end of the business and none had a national presence. The landscape included:
Linens 'n Things: Begun by entrepreneur Eugene Kalkin, the New York-based operation had been purchased by burgeoning retail conglomerate Melville three years earlier. Arguably the largest home specialist at the time, the store was heavily weighted toward the Linens side.
Lee Jay Bed and Bath: Coming out of the Boston area, Howard Israel created a regional powerhouse that was almost exclusively soft home and was an early direct importer. Strouds: Originally a discount operation, Bill Stroud was already moving his Southern California mini-chain up market with bigger stores, although still virtually all bed and bath. Pacific Linens: Based in Seattle, the specialty operation followed the same soft home model as the others.
There were other regional players scattered throughout the country, but they each had two things in common: There was virtually no overlap in geographic presence--other than LNT and Bed & Bath in the New York metropolitan area--and each one was primarily if not completely focused on home textiles products. Only a few non-soft-home specialty chains existed: Lechter's, Waccamaw and perhaps one or two others.
By 1985, Eisenberg and Feinstein had built up a good-sized business, at least as the playing field existed then. From two stores in 1971, the company had expanded to 17 units in New York, New Jersey, Connecticut and California.
They knew they were on the right track. "We had witnessed the department-store shakeout and knew that specialty stores were going to be the next wave of retailing," Feinstein said in a rare interview, in 1993. (Company officials declined to comment for this story.)
But they also knew their 2,000-square-foot, soft-home-only stores were not going to be enough. Bed and bath products provided good margins but did not drive traffic. Eisenberg and Feinstein knew they had to do something to take their business to the next level.
"They caught the genie in the bottle." So says Howard Israel today, more than a decade after BBB effectively put his Lee Jay operation out of business. "They captured an unidentified market."
The vehicle to capture that market was a 20,000-square-foot location in Springfield, N.J., a central Jersey suburban town where one of the company's original two stores had been located.
At ten times the size of those existing units and at least twice as big as anything else in the specialty arena, the store was a dramatic break from the status quo. It featured an extensive assortment of housewares products and you had to walk through those departments to get to the domestics area.
And unlike its predecessors, it had a new name: Bed Bath & Beyond.
Said Feinstein about the early days in that same interview: "It was the beginning of the designer approach to linens and housewares and we saw a real window of opportunity."
While Toys 'R' Us is generally credited with inventing the category killer retailing format--offering huge assortments in a narrowly defined merchandising classification at competitive prices--it was BBB that brought the concept to home furnishings.
The company, still privately owned at the time, didn't provide financial data to corroborate the success of the new format, but to anyone in the industry, it was clear what was happening.
"They captured it," said Israel, "and the day of the linen specialty store was over.
"Here I was with 10,000-square-foot stores and they came along with these big stores and lots of money and they would just be overwhelming. There was no way for a small store to survive."
"When they went to the Beyond format, they got it," remembered Alan Gladstone, founder and president of Anna's Linens, which with more than 250 stores today is the only other large-scale home furnishings specialty operation still in business. "The customer responded."
Things clicked pretty quickly for BBB. Within two years the corporate name had been changed to Bed Bath & Beyond and within the next few years it opened nine superstores in various parts of the country. Without central warehousing and the need to cover regional advertising, it could situate locations scattershot around the country and that's what it did.
Said one analyst at that time about BBB: "(It) took a less-than-strong category and made it important."
The cornerstones of the BBB merchandising strategy are all well known today: decentralized management, tight financial controls, no debt, strong merchandising with a special emphasis on item selling and an uncompromising buying philosophy. But back in the late 1980s they were doing things nobody else was--and doing them very well.
By 1991, sales had reached $134 million and Bed Bath was starting to pull away from the rest of the specialty pack.
"We were unable to change," said Israel, perhaps speaking for his counterparts of the era. "I was locked into leases and couldn't open bigger stores. They had better locations too."
Israel began opening larger stores and tried to move hard goods into existing locations, but his stores could never compete in size and scope with Bed Bath. When BBB opened a store just up the road from Lee Jay's Natick, Mass., flagship, Israel said sales virtually collapsed. "We just didn't have the stores. They were smart or lucky ... or both."
One by one, as BBB expanded nationally, the regional players began to go under. Stroud's tried to break out of its Southwestern U.S. base and even went public, but its linens-only format was no competition for Bed Bath. Regionals like Home Express, 3D and Pacific Linens could not defend their turfs.
Even a well-financed, slick newcomer called HomePlace, which opened with a bang and expanded rapidly, couldn't compete and after merging with Waccamaw, it too fell victim to the onslaught.
Only Linens 'n Things, which was spun off from Melville in 1996 and went public, survived, but eventually it too succumbed to over-leveraged debt and management miscues in 2008.
Luxury Linens, the home textiles and home decor department started within Burlington Coat Factory in 1987, remains in business, but is generally conceded to be in a different league from home superstores.
And then there's Anna's. "There were 25 regional and national specialty store operations when we started 22 years ago," said Gladstone. "And besides us and Bed Bath, they all failed."
How has Anna's survived? "When I started Anna's, I purposely had a model that was not going to compete with BBB. We didn't want to become Anna's Linen Superstore. I saw that they were going after the better, Caucasian customer and that's not who our customer is.
"Our customer"--a primarily ethnic, lower and middle income demographic--"doesn't go to Bed Bath & Beyond. I don't consider them a competitor. We are different stores."
Gladstone has enormous respect for Bed Bath. "Nobody does it better and they are led by great merchants with great financial discipline." For that reason he doesn't believe anyone can coexist in Bed Bath's space.
But Anna's, which expects to have 275 stores by the end of the year and is doing double-digit comps this year, according to Gladstone, has found its niche. "The proof is all around: We're still here and all the other stores are gone."
All of them except for Bed Bath and Beyond, now with some 1,100 stores across five brands in three countries. Speaking on a conference call a few years back, current Bed Bath & Beyond CEO Steve Temares talked about all of those long-gone competitors and put things in a kind of perspective. "Change is not new. Our experience is that home is vibrant and strong, and abounds with opportunities for continued profitable growth."
In hindsight, when Bed Bath went Beyond in 1985 nobody quite knew how monumental that was. A seminal moment in history Howard Israel was asked?
"It has to be. The world changed."