The Container Store is teaming up with a rival in a partnership that comes with a multimillion-dollar investment and puts the Bed Bath & Beyond brand back in U.S. stores at a time when retail space is scarce across the country.
Beyond Inc., the Utah-based parent of Bed Bath & Beyond, Zulily, Overstock and other online retail brands, is making a $40 million investment in The Container Store to help boost the Dallas-area organizational retailer's bottom line. As part of the agreement, some Bed Bath & Beyond products will be available in The Container Store's 102 U.S. stores in what is a return for the brand to brick and mortar.
Beyond's investment comes at a financially troubling time for The Container Store, which has not posted a full-year profit since 2021. Last year, sales were down more than 20% year over year, with double-digit losses continuing into the first quarter of 2024 and net sales being down more than 12% to $181.9 million. The New York Stock Exchange threatened to delist the company after its stock traded for less than $1 in a 30-day trading window, pushing the 46-year-old company last month into a reverse-back-split.
Big-box retailer Bed Bath & Beyond is no stranger to financial difficulty after filing for bankruptcy protection in April 2023 that led to it ultimately closing all of its stores. Beyond, then known as Overstock.com, purchased the Bed Bath & Beyond brand and its intellectual property in June 2023. The brand has been operating in an online platform since then.
Beyond's investment keeps The Container Store financially afloat while offering Bed Bath & Beyond access to a sprawling U.S. real estate portfolio. Real estate likely played a critical role in Beyond's decision to invest in The Container Store, with the brand getting an immediate foothold in stores throughout the U.S., said Robert "Bob" Young, executive managing director at Dallas-based retail real estate brokerage Weitzman, who was not involved in the deal.
"The retail real estate market continues to be a tight market everywhere," Young told CoStar News. "The climate is not right to add new retail real estate based on capital and construction costs. The chance of new supply growing sufficiently is not happening anytime soon."
Expanded reach
The deal also leverages Beyond's e-commerce expertise, data platform and analytics with The Container Store's high-margin custom space business, including its proprietary Elfa and Preston lines, to create a more comprehensive business, the companies said.
The Container Store CEO Satish Malhotra said the agreement gives the retailer the ability to expand its reach across a combined network.
“Beyond’s enthusiasm for this collaboration is reflected in the investment they plan to make in The Container Store that will strengthen our financial position, allow us to continue to execute on our growth strategy, and deliver a best-in-class experience for our customers," Malhotra said, adding that the company plans to share additional details on its upcoming earnings call scheduled for Oct. 29.
There's "tremendous whitespace" for The Container Store's offerings in the Beyond portfolio, said Marcus Lemonis, executive chairman of Beyond, in a statement. The incorporation of the most popular Bed Bath & Beyond products will drive "improved financial performance" and offer customers "a more comprehensive product offering for their home and organizational needs," Lemonis said.
The new co-branded offerings coming to The Container Store, which already offers more than 10,000 organizational products, are expected to cater to kitchens, bathrooms and bedrooms.
The Container Store saw its profits rise after the pandemic's onset as a Netflix series devoted to world-renowned tidying expert Marie Kondo inspired U.S. consumers to spend time and money organizing their homes. In October 2020, The Container Store teamed up with Kondo on a line of organizational products. But the company's profits stalled in 2021 as fewer people moved into new homes and consumers became more price sensitive amid an influx of competitors into the space.
The Container Store's preferred stock being exchanged with Beyond for its $40 million investment is expected to convert into common stock at the price of $17.25 per share, according to the agreement, resulting in Beyond holding an ownership of about 40% of The Container Store's common equity.
For the record
Latham & Watkins was The Container Store's legal counsel, with JPMorgan serving as its financial adviser. King & Spalding was Beyond's legal counsel, with Goldman Sachs serving as its financial adviser.