Brand Research: Bed Bath & Beyond’s Store Closure Strategy
After decades of building a vast, distributed location footprint, many brick-and-mortar retailers are finding that they need to adapt strategy. Changing shopping patterns, increasing real estate costs, and declining profitability have led to a re-evaluation of go-forward growth strategy.
The question for these retailers becomes not necessarily how to saturate a market, but how to optimize it. Which locations give the greatest reach of the target customer while minimizing cannibalization between stores?
One of the brands that exemplifies the transitioning store strategy is Bed Bath & Beyond. Historically reliant on the in-person shopper, the brand has been forced to re-think its strategy and footprint in light of the changing retail world. As a part of this, the company recently announced that they’ll be closing about 150 stores, and the first 56 locations to close were released.
Choosing which locations to keep open and which to close is a complex decision and may include factors like store profitability, proximity of other locations, availability of store workers, competition, and/or location alignment with the target customer, among many other factors.
With that said, we can still look for patterns at scale in the stores that are closing — and those that are staying open — to see what this might tell us about how the location strategy is evolving to meet the current needs of the business and customer.
The Bed Bath & Beyond Store of Today
Today, Bed Bath & Beyond has built a network of over 700 stores across the country. The number of stores open by state largely tracks to population count, with higher population states having more stores.
Source: Company Website
The store footprint covers both major cities and locations far from a city center. The median population living within a 15-minute drive of a Bed Bath & Beyond location (an estimated typical catchment area for the brand) is ~180,000 people and the median household income for this catchment area is nearly $70,000, which is about on par with the US median household income.
Source: Analysis of store locations
To round out a few data points in the demographic profile, households in Bed Bath & Beyond’s catchment area have an average size of 2.64 people and 37% of adults 25 or older have earned a Bachelors degree or higher. These are about on par with the national average.
In other words, Bed Bath & Beyond serves the “typical” American household — living in or around population centers, average income, mixed families with children or childless couples, and at a variety of education levels. This core customer leaves them susceptible to broader economic & cultural trends. To dramatically simplify it, as shopper habits and the economy go, so goes the fate of the company.
The Changing Store Footprint
The announced closings (~150) represent about 20% of the currently open stores, and the already revealed locations (56) represent about 8% of current stores.
The Midwest will see the biggest percentage decrease in stores, with Iowa, Michigan, Ohio, and Illinois all losing nearly 20% of their stores or more. By raw count, California, Illinois, New York, and Michigan will lose the most stores.
Source: Analysis of data from Bed Bath & Beyond website
Source: Analysis of data from Bed Bath & Beyond website
The stores closing largely fall into one of two categories:
The store overlaps with the catchment areas of other stores
The store falls outside of a core service area
I estimate that about 65% of closings fall into one of those two categories. Many of the remaining 35% sit on the outer edge of current service areas — for example, they are the furthest location from a city center in a metro area.
Source: Analysis of Bed Bath & Beyond location data
Let’s look at an example of each of these categories. Overlapping with another catchment area means that a significant portion of the customers could still reach another store within a 15-minute drive from their home even after the store closes.
Below is a map of the estimated 15-minute drive time radius from each of the current stores in Portland, OR. The green areas are stores that will remain open, while the red area is a store that will close.
Estimated catchment area for stores in Portland, OR. The red area is the catchment area of a store set to close.
More than 60% of the households in the catchment area of the closing store will continue to be able to access another nearby store, and the remaining households without overlapping catchment area will still be only a ~20-minute drive.
For this market — and this store — there may be a reasonable assumption that most business will be absorbed by one of the other neighboring stores, and the remaining customer count wasn’t enough to justify keeping the store open.
The second group of closing stores are ones I would categorize as falling outside of a core service area for store logistics purposes. Consider the locations near Minneapolis, MN. The catchment area for the 6 stores located in and around Minneapolis is fairly efficient — there’s little overlap among them while maximizing coverage of the city.
Store catchment areas in and around Minneapolis, MN
Then, there’s one more location out near Saint Cloud in the top left. This store is about an hour from the Minneapolis stores. Is this an unreasonable distance? Not necessarily, but when looking from an efficiency lens, the store sits alone. This presents the opportunity to either (1) build around it to increase store density or (2) remove it from the current store operations.
The choice may have been made that the market near Saint Cloud couldn’t support more stores, so closing became the de-facto option.
Many of the remaining stores set to close sit on the edge of current service areas. Consider the store footprint around Phoenix, AZ. For the moment, only one store is closing. This store sits at the northernmost edge of the city’s service area. It has the lowest catchment area population — less than 85,000 estimated residents, far lower than the next lowest of ~245,000.
The population in this area is wealthy with a typical household income over $100,000, but this isn’t necessarily the core Bed Bath & Beyond shopper, as exemplified by their typical location profile above (about $70K income).
Source: Company website and independent analysis
In summary, this location has low population, is at the edge of the market, and may not contain a significant presence of core customers, so it may not have been a good fit for the slimmed-down go-forward store strategy.
The store closures in the aggregate appear to prioritize market optimization, simplification of logistics, and a focus on core service areas. Do you need 3 stores when you can cover 85% of the population with 2? Do you need the additional store at the edge of town that may no longer fit your target market profile? Does the additional store outside of the core service area continue to make sense?
What’s Next?
This analysis doesn’t touch on a couple additional key considerations in the store closure decision, one being store profitability and the other being the impact on the workers in the store.
Every closure means a set of employees that are either offered the opportunity to transfer to another location or may find themselves without work, and this is a heavy decision to make. For store profitability, this likely tops the list as the place to start. Stores that aren’t profitable will, in the absence of other value to the brand, oftentimes be the first looked at for closure.
As the company considers the next phase of stores that will be closed, I’d imagine it might extend the principles of the first rounds of closure — eliminating overlapping catchment areas and consolidating operations for efficiency.
Consider the current state of the southeast coast of Florida. While one store is slated to close already, there’s significant overlap of stores running down the coast.
Contrast that to the southwest coast of Florida, where there’s still a significant presence, but the locations are much more efficiently laid out with less overlap between store catchment areas.
There may also be a market size component factored in, similar to the example shared in Phoenix above. In Houston, there’s a store that follows the same pattern of being both at the outer edge of the service area and with relatively low population in the catchment area — much less than the surrounding stores.
Source: Analysis of store and population data in Houston, TX
Many brick-and-mortar retail companies are re-evaluating where they open — or keep open — stores based on changing demographics, shopping habits, and evolving strategy. Location intelligence adds an additional layer on these conversations by helping quantify and visualize the market demographics and size in addition to the interaction between store catchment areas.