The owner of Bed Bath & Beyond's intellectual property has reached a second agreement in the past week aimed at rebooting the defunct retailer. This time the firm, just called Beyond, and specialty home decor seller Kirkland's are teaming up to open brick-and-mortar stores in the United States.
The move comes days after a separate attempt to revive the physical footprint of one of Bed Bath & Beyond's former brands, Buy Buy Baby, came to an end.
Nashville, Tennessee-based Kirkland's, a chain with 325 stores in 35 states, said Monday it struck a deal with Beyond to roll out small-format Bed Bath & Beyond stores, kicking off with five pilot locations. Beyond, headquartered in Midvale, Utah, owns the Bed Bath & Beyond, Overstock and Zulily online brands. As part of their new strategic partnership, Beyond will invest $25 million through a combined debt and equity transaction in Kirkland's to strengthen that company's capital position and drive its growth initiatives, according to a joint statement.
Union, New Jersey-based Bed Bath & Beyond filed for Chapter 11 protection last year. It ended up liquidating and closing all its namesake and Buy Buy Baby stores. Beyond, after acquiring the banner chain's intellectual property rights, has now unveiled two deals to get Bed Bath Beyond's products out on shelves in physical stores. It announced a partnership with The Container Store last week, investing $40 million in the retailer, which will begin carrying some Bed Bath & Beyond products.
"Beyond, which bought the Bed Bath & Beyond brand, is desperate to monetize its investment of a brand that has been a staple in the home furnishings retail business for decades, and probably has potential to be revived in a brick-and-mortar setting," Rudy Milian, President and CEO of retail consultant Woodcliff Realty Advisors, said in an email to CoStar News. "The Beyond investment of $40 million in The Container Store, another retailer suffering from the home furnishings slump, dwarfs the $25 million investment Beyond made in Kirkland’s, which may prove more beneficial."
Beyond didn't immediately respond to an email from CoStar News seeking a comment on Milian's remarks.
The Kirkland's-Beyond foray represents the latest attempt to resurrect a retailer whose brick-and-mortar business was shut down, with no remaining physical footprint. Such efforts have had mixed results. New York-based WHP Global acquired both the Toys R Us and Babies R Us brands three years ago, following the demise of both chains. Since then, the company has opened flagship stores for both Toys R Us and Babies R Us at the American Dream megamall in East Rutherford, New Jersey. In a multipronged approach, WHP also struck deals to launch store-in-store Toys R Us shops at hundreds of Macy's stores and is rolling out Babies R Us boutiques in Kohl's department stores.
'Neighborhood' stores
But a yearlong effort to relaunch Buy Buy Baby failed. Piscataway, New Jersey-based Dream on Me Industries had purchased that baby goods retailer's intellectual property rights and trademarks, and a year ago said it would reopen 10 Buy Buy Baby stores. Late last week, on its website Buy Buy Baby announced it was closing all its stores by the end of the year to just sell products online.
Under Beyond's new deal, Kirkland's will become the exclusive brick-and-mortar operator and licensee for new, small-format "neighborhood" Bed Bath & Beyond locations nationwide. The joint statement said those stores will be up to 15,000 square feet, and in a securities filing Monday Beyond put the size at as small as 7,000 square feet.
"We are planning to open our first neighborhood Bed Bath & Beyond stores in 2025 with an initial pilot of up to five stores," Kirkland's CEO Amy Sullivan said during a conference call Monday with investors. "We expect these stores have the potential to deliver revenue that well exceeds the current average Kirkland store. And while we will be measured in our initial pilot, we will move quickly based on learnings. We are very excited for the opportunity to further expand our network beyond our current brand."
The new stores will cater to former Bed Bath & Beyond shoppers by curating the top national brands they once expected, according to Sullivan. Beyond is led by Executive Chairman Marcus Lemonis, a veteran business executive who had his own TV show, "The Profit," that ran on CNBC for eight seasons.
"Our belief in partnering with Marcus and the Beyond team is that the Bed Bath & Beyond revitalization will be the best if it is that legacy experience that the customer expects," Sullivan said. "And so the store would inherently be a Bed Bath & Beyond store and and the best of the categories in a smaller space. I do see an opportunity to infuse where appropriate some Kirkland's home decor, think of, you know, a seasonal shop ... but the store would be true to what the customer expects from Bed Bath & Beyond."
Possible conversions
As part of the Beyond partnership, Kirkland's will also get a nonexclusive license to operate “shop-in-shops” under the Bed Bath & Beyond banner at the locations and in the size and format mutually agreed upon by the parties, according to Beyond's filing.
Sullivan touted Kirkland's benefits to Bed Bath & Beyond, including its 58 years of store operations expertise, its supply-chain network, and the chance to use its brick-and-mortar footprint to identify potential store conversion opportunities.
"What I like about the deal with Kirkland’s is that they could convert some of the under-performing Kirkland’s stores into small Bed Bath & Beyond stores, which would revive the former popular brand in the brick-and-mortar space," Milian said. "This would be better than the deal with The Container Store, which just includes opening a department within the store to sell [Bed Bath & Beyond] merchandise. Kirkland’s needs a good shot in the arm. Its stores are low in inventory and carry very limited assortment of home furnishings, sort of a reduced version of Pier 1, and we know what happened to them, even when the home furnishings market was in high demand."
Kirkland's didn't didn't immediately respond to an email from CoStar News seeking comment on Milian's remarks.
With its deal, Kirkland's will get access to Beyond's e-commerce platform and technology, according to Sullivan.
"An omnichannel approach to Bed Bath & Beyond is quintessential to its success," Lemonis said in a statement. "We understand that retail is both an art and a science and have vetted the management team and infrastructure of Kirkland's Home as an ideal organization to help bring the iconic Bed Bath & Beyond brand back. The key to retail is efficiency in assortment, space management, sourcing, and merchandising, all while recognizing that smaller, tighter footprints with significantly lower fixed cost models is a winning recipe."
And retail analyst Neil Saunders, managing director at GlobalData, appeared to agree about the importance of stores.
"Bed Bath & Beyond has likely found that an online-only offer is very difficult to make work, mainly because it’s hard to maintain visibility with consumers," Saunders said in an email to CoStar News. From their own results, we know that the sales numbers have been poor since they [Beyond] took over the business. They are now making a concerted effort to build a physical presence and rather than doing this via their own stores they are partnering with other businesses."
Beyond didn't immediately respond to an email from CoStar News seeking comment on Saunders' remarks.
Paying Gordon Brothers
Under the new partnership, Kirkland's entered into a $17 million loan credit agreement with Beyond, $8.5 million of which consists of a note that will convert into Kirkland's common stock at a price of $1.85 per share upon the approval of Kirkland's shareholders. Beyond will purchase an additional $8 million of Kirkland's common stock at the conversion price when the shareholders approve the deal.
In addition, Beyond will earn a collaboration fee equal to 0.25% of Kirkland's quarterly retail and e-commerce revenue starting in Kirkland's first quarter of fiscal 2025 and an incentive fee equal to 1.5% of Kirkland's incremental growth in e-commerce revenue during the seven-year term of the agreement.
Both companies also struck a trademark license agreement in which Beyond will earn a store royalty fee equal to 3% of net store sales generated under the Bed Bath & Beyond banner during the term of the collaboration agreement, with that rate increasing to 5% of net store sales after the deal has terminated, if the locations are still operating.
KIrkland's will use proceeds from the term-loan portion of the transaction to repay its existing loan with Gordon Brothers, including prepayment fees, transaction expenses, and to reduce borrowings under Kirkland's existing revolving credit facility with Bank of America.
Osmium Partners, who owns about 9% of Kirkland's shares, has committed its support for the transaction, the retailer said.
For the record
Investment bank Consensus served as financial adviser to Kirkland's and Bass, Berry & Sims served as their legal adviser. Latham & Watkins served as legal adviser to Beyond.