353 ms·

I don't know about "BedBath&Beyond". Would you mind to elaborate for those of us who don't know? :-)

by DarkNova6 3y ago

pmontra 3y ago
Maybe this https://en.wikipedia.org/wiki/Bed_Bath_%26_Beyond https://en.wikipedia.org/wiki/Bed_Bath_%26_Beyond
- javajosh 3y ago
  what a sad story. It's an interesting tale oddly in favor of letting nepotism happen. The story definitely reads like some activist investors righteously decapitated the company for nepotism, but then were left with a dead body.
  - MakeThemMoney 3y ago
    Is it really in favour of nepotism? I see nepotism in this case as incidental. They could have restructured the company for the lulz, and still get the same result.
- ethbr1 3y ago
  The things you miss... I wasn't even aware they'd disappeared. That history is some reading! When your CFO tragically jumps off a balcony, the company might not be doing well. Why do so many big box stores seem to follow the huge growth -> saturation -> quick implosion and bankruptcy script? Surely their margins don't materially change? Low per store sales from bad stores? But the first step seems to be closing stores, and that doesn't resolve the issue. It seems weird they'd be able to attract capital for expansion, but then implode so quickly.
  - jerf 3y ago
    "Why do so many big box stores seem to follow the huge growth -> saturation -> quick implosion and bankruptcy script?" Debt financing. Zigging a bit, my family has been watching The Foods that Built America: https://www.history.com/shows/the-food-that-built-america https://www.history.com/shows/the-food-that-built-america It seems that about half the episodes tell the same story: Somebody built a new food concept, or polished an existing one in some very useful economic way. They're super ambitious and pretty much as soon as they proved out their base restaurant or sold to a few stores, they immediately opened a couple dozen new restaurants or built a huge new factory. Which they do by loading up on huge, huge amounts of debt. Most of the rest of the human interest portion of the episode talks about the stresses of pulling in enough money to pay the debt. Many of them get acquired or end up getting so much external investment that it amounts to an acquisition. Of course it's a survivor bias situation; we're not getting told stories about the companies that did the same thing but failed utterly. While the past 20 years of ~zero interest rates have made this even easier, it isn't necessary. It has quite often been possible to go to some banks with what looks like a good idea and end up in debt up to your eyeballs while expanding your business size possibly by entire factors of magnitude virtually overnight. It ends up very similar to the venture capital pattern we're familiar with in our industry even if isn't exactly the same forces. The result is basically a bimodal distribution; either you manage to pay down the debt to some reasonable level and you end up with a large money-printing business, or you don't, and you have to liquidate everything. Basically you're seeing the failing side of the bimodal distribution of this pattern. Since a business always works to project strength, you never see them visibly ailing; it's just, there's this big edifice that looks invincible and then virtually overnight it's gone. A further elaboration relevant to BB&B is that when you're in debt trouble, you become extremely vulnerable financially. You need to pay off that debt, and that opens you up to corporate raiders who supply you with enough to keep you afloat, but then have a lot of options to do things useful in the short term but that kill the company in the long term. With clever structuring, they can keep the profits but dump the debt with the company itself as it goes under. BB&B had some of this going on. However, I consider this a further consequence of the original debt financing, basically one of the concrete ways it can fail. (Expect to see some more over the next few years. There's a lot of "zombie companies" out there (a term you can google), which is a term for the companies making just enough revenue to pay the interest load on their debts but not pay down principle. In a zero-interest rate world they could sort of chug along indefinitely, but as they have to pay real interest you're going to see these companies really start to struggle.)
    - jjoonathan 3y ago
      > With clever structuring, they can keep the profits but dump the debt I've always wondered the degree to which these buyouts are legitimate last-ditch turnaround efforts vs front-running bankruptcy proceedings.
    - MarkSweep 3y ago
      According to the Wikipedia article, much of the debt BB&B acquired was to buy back stock.
    - marcosdumay 3y ago
      > Basically you're seeing the failing side of the bimodal distribution of this pattern. Hum, kinda, but infinite-growth management doesn't get a bimodal distribution. They get a corporate version of the Peter principle, where the loans increase in value until the company can't grow enough to pay them. You don't even get a distribution in final outcomes, just in lifetime. And since the growth is exponential, there isn't a lot of variance on it either.
    - CWuestefeld 3y ago
      This process doesn't have to be the result of any nefarious intent. AIUI, it's common when taking on debt for the creditors to try to protect their investment by including specific performance guarantees. There may be numbers that the company has to maintain around revenue, inventory turnover, etc. - or the creditors will have the right to call the debt. The thing is, the need for the creditors to limit their risk isn't necessarily aligned with the overall best interest of the company. Conforming to these debt covenants can force the borrower to act for short-term numbers at the expense of long-term performance, a sort of Goodhart's Law effect caused by the metrics imposed in the debt covenants. I've seen my employer become the beneficiary of this through a couple of periods of tough markets. Privately held with zero debt, our CEO was able to solidify our market position at the same time our competitors were doing obviously dumb things, the result of which is that we came out of those difficult times very much stronger in the industry.
    - ethbr1 3y ago
      Reasonable take. I'd be curious about typical financing terms in retail for physical expansion. But time at a few solid, well-run companies made me appreciate how important a powerful but ego-less CFO is to success. Someone in the room to say "Doing that will cost a lot in the future. What about this alternative?" I'd also be curious about the frequency of successful debt management schemes... it seems something of a prisoner's dilemma if you're a large shareholder in a heavily-indebted business. Either you allow the company to plow revenue into paying down debt (maybe for years), or you preempt your fellow investors and launch a raid to extract value for yourself before it implodes. It seems like making companies more resistant against raid-and-dump-debt would be good for all involved (companies, their creditors, the entire pool of equity holders... basically everyone except raiders).
  - thmsths 3y ago
    I think your model is missing an intermediate step after financial troubles but before closing stores: aggressive cost cutting that ruin the product/experience. By the time they have gotten around to closing the underperforming stores, every other store is now underperforming.
  - rurp 3y ago
    A frequent cause is private equity. It's common to buy a well know brand, leverage it to the eyeballs in order to extract short term profits and bonuses, and leave the company with no margin to weather a rough patch or evolve when needed. A number of household brand names have been destroyed following this general playbook.
    - tivert 3y ago
      > A frequent cause is private equity. It's common to buy a well know brand, leverage it to the eyeballs in order to extract short term profits and bonuses, and leave the company with no margin to weather a rough patch or evolve when needed. A number of household brand names have been destroyed following this general playbook. That's why capitalism is so great, right? Creative destruction.
  - bsder 3y ago
    > Why do so many big box stores seem to follow the huge growth -> saturation -> quick implosion and bankruptcy script? Recently--mostly private equity. Any company with >$50 million in real cashflow is a target for private equity to come in, load it up with debt and extract the cash.
wredue 3y ago
Cheap massively overpriced shit products, with horrendous stock control managers and stock buyers with some… weird taste. There you go. Bed Bath and Beyond.
- coffeebeqn 3y ago
  And their management squeezed the company for personal profit until it went bankrupt
AndrewKemendo 3y ago
Channeling dang for a moment: Previously discussed: https://news.ycombinator.com/item?id=37652479 https://news.ycombinator.com/item?id=37652479

I don't know about "BedBath&Beyond". Would you mind to elaborate for those of us who don't know? :-)

pmontra 3y ago

Maybe this https://en.wikipedia.org/wiki/Bed_Bath_%26_Beyond https://en.wikipedia.org/wiki/Bed_Bath_%26_Beyond

javajosh 3y ago
what a sad story. It's an interesting tale oddly in favor of letting nepotism happen. The story definitely reads like some activist investors righteously decapitated the company for nepotism, but then were left with a dead body.
- MakeThemMoney 3y ago
  Is it really in favour of nepotism? I see nepotism in this case as incidental. They could have restructured the company for the lulz, and still get the same result.
ethbr1 3y ago
The things you miss... I wasn't even aware they'd disappeared. That history is some reading! When your CFO tragically jumps off a balcony, the company might not be doing well. Why do so many big box stores seem to follow the huge growth -> saturation -> quick implosion and bankruptcy script? Surely their margins don't materially change? Low per store sales from bad stores? But the first step seems to be closing stores, and that doesn't resolve the issue. It seems weird they'd be able to attract capital for expansion, but then implode so quickly.
- jerf 3y ago
  "Why do so many big box stores seem to follow the huge growth -> saturation -> quick implosion and bankruptcy script?" Debt financing. Zigging a bit, my family has been watching The Foods that Built America: https://www.history.com/shows/the-food-that-built-america https://www.history.com/shows/the-food-that-built-america It seems that about half the episodes tell the same story: Somebody built a new food concept, or polished an existing one in some very useful economic way. They're super ambitious and pretty much as soon as they proved out their base restaurant or sold to a few stores, they immediately opened a couple dozen new restaurants or built a huge new factory. Which they do by loading up on huge, huge amounts of debt. Most of the rest of the human interest portion of the episode talks about the stresses of pulling in enough money to pay the debt. Many of them get acquired or end up getting so much external investment that it amounts to an acquisition. Of course it's a survivor bias situation; we're not getting told stories about the companies that did the same thing but failed utterly. While the past 20 years of ~zero interest rates have made this even easier, it isn't necessary. It has quite often been possible to go to some banks with what looks like a good idea and end up in debt up to your eyeballs while expanding your business size possibly by entire factors of magnitude virtually overnight. It ends up very similar to the venture capital pattern we're familiar with in our industry even if isn't exactly the same forces. The result is basically a bimodal distribution; either you manage to pay down the debt to some reasonable level and you end up with a large money-printing business, or you don't, and you have to liquidate everything. Basically you're seeing the failing side of the bimodal distribution of this pattern. Since a business always works to project strength, you never see them visibly ailing; it's just, there's this big edifice that looks invincible and then virtually overnight it's gone. A further elaboration relevant to BB&B is that when you're in debt trouble, you become extremely vulnerable financially. You need to pay off that debt, and that opens you up to corporate raiders who supply you with enough to keep you afloat, but then have a lot of options to do things useful in the short term but that kill the company in the long term. With clever structuring, they can keep the profits but dump the debt with the company itself as it goes under. BB&B had some of this going on. However, I consider this a further consequence of the original debt financing, basically one of the concrete ways it can fail. (Expect to see some more over the next few years. There's a lot of "zombie companies" out there (a term you can google), which is a term for the companies making just enough revenue to pay the interest load on their debts but not pay down principle. In a zero-interest rate world they could sort of chug along indefinitely, but as they have to pay real interest you're going to see these companies really start to struggle.)
  - jjoonathan 3y ago
    > With clever structuring, they can keep the profits but dump the debt I've always wondered the degree to which these buyouts are legitimate last-ditch turnaround efforts vs front-running bankruptcy proceedings.
  - MarkSweep 3y ago
    According to the Wikipedia article, much of the debt BB&B acquired was to buy back stock.
  - marcosdumay 3y ago
    > Basically you're seeing the failing side of the bimodal distribution of this pattern. Hum, kinda, but infinite-growth management doesn't get a bimodal distribution. They get a corporate version of the Peter principle, where the loans increase in value until the company can't grow enough to pay them. You don't even get a distribution in final outcomes, just in lifetime. And since the growth is exponential, there isn't a lot of variance on it either.
  - CWuestefeld 3y ago
    This process doesn't have to be the result of any nefarious intent. AIUI, it's common when taking on debt for the creditors to try to protect their investment by including specific performance guarantees. There may be numbers that the company has to maintain around revenue, inventory turnover, etc. - or the creditors will have the right to call the debt. The thing is, the need for the creditors to limit their risk isn't necessarily aligned with the overall best interest of the company. Conforming to these debt covenants can force the borrower to act for short-term numbers at the expense of long-term performance, a sort of Goodhart's Law effect caused by the metrics imposed in the debt covenants. I've seen my employer become the beneficiary of this through a couple of periods of tough markets. Privately held with zero debt, our CEO was able to solidify our market position at the same time our competitors were doing obviously dumb things, the result of which is that we came out of those difficult times very much stronger in the industry.
  - ethbr1 3y ago
    Reasonable take. I'd be curious about typical financing terms in retail for physical expansion. But time at a few solid, well-run companies made me appreciate how important a powerful but ego-less CFO is to success. Someone in the room to say "Doing that will cost a lot in the future. What about this alternative?" I'd also be curious about the frequency of successful debt management schemes... it seems something of a prisoner's dilemma if you're a large shareholder in a heavily-indebted business. Either you allow the company to plow revenue into paying down debt (maybe for years), or you preempt your fellow investors and launch a raid to extract value for yourself before it implodes. It seems like making companies more resistant against raid-and-dump-debt would be good for all involved (companies, their creditors, the entire pool of equity holders... basically everyone except raiders).
- thmsths 3y ago
  I think your model is missing an intermediate step after financial troubles but before closing stores: aggressive cost cutting that ruin the product/experience. By the time they have gotten around to closing the underperforming stores, every other store is now underperforming.
- rurp 3y ago
  A frequent cause is private equity. It's common to buy a well know brand, leverage it to the eyeballs in order to extract short term profits and bonuses, and leave the company with no margin to weather a rough patch or evolve when needed. A number of household brand names have been destroyed following this general playbook.
  - tivert 3y ago
    > A frequent cause is private equity. It's common to buy a well know brand, leverage it to the eyeballs in order to extract short term profits and bonuses, and leave the company with no margin to weather a rough patch or evolve when needed. A number of household brand names have been destroyed following this general playbook. That's why capitalism is so great, right? Creative destruction.
- bsder 3y ago
  > Why do so many big box stores seem to follow the huge growth -> saturation -> quick implosion and bankruptcy script? Recently--mostly private equity. Any company with >$50 million in real cashflow is a target for private equity to come in, load it up with debt and extract the cash.

wredue 3y ago

Cheap massively overpriced shit products, with horrendous stock control managers and stock buyers with some… weird taste. There you go. Bed Bath and Beyond.

coffeebeqn 3y ago
And their management squeezed the company for personal profit until it went bankrupt

AndrewKemendo 3y ago

Channeling dang for a moment: Previously discussed: https://news.ycombinator.com/item?id=37652479 https://news.ycombinator.com/item?id=37652479