Bed Bath & Beyond Used to Be Great. These Two Are Why. Co-founders Warren Eisenberg,
Bed Bath & Beyond Used to Be Great. These Two Are Why. Co-founders Warren Eisenberg, 92, and Leonard Feinstein, 85, explain their thrifty management, novel approach to merchandising and lucky timing as the chain now nears bankruptcyKapner, Suzanne. Wall Street Journal (Online); New York, N.Y.
PALM BEACH, Fla.—The founders of Bed Bath & Beyond Inc. were at the Four Seasons Resort here this month, chatting about how they turned two small stores into a retail force and pop-culture phenomenon.
Money was tight and what little of it they had went to merchandise, not to advertising or trying to make stores look pretty. To hide the industrial fixtures, they piled towels, linens and bedding to the ceiling, giving rise to the clutter that became a hallmark of the chain, which started in the New York City suburbs.
"We were accused of making the stores too crowded," said Warren Eisenberg, now 92. "And there was something to that. But if you came to the store to buy a mattress pad, there was no way that you were going to walk out with only a mattress pad."
Mr. Eisenberg and co-founder Leonard Feinstein, 85, have watched from a distance as the value of their creation shriveled. When they were forced off the board by activist investors in 2019, Bed Bath & Beyond had a market value of $2.3 billion and employed 62,000 people. It is now worth less than $300 million and barreling toward bankruptcy .
Yet in an era of superstar founders and CEOs who struggle to cede power and the spotlight that comes with it, the pair say they have let Bed Bath & Beyond go. They stepped down as executives in 2003 and sold all their stock after they left the board. They now spend most of their time and considerable wealth on philanthropy and art. They are benefactors of New York's New Museum of Contemporary Art. Mr. Eisenberg is on the board of the "I Have a Dream" Foundation, which mentors underprivileged children from kindergarten through college. Mr. Feinstein founded the New York-based Feinstein Institutes for Medical Research, which studies potential treatments for lupus, cancer and arthritis among other work.
"When we left, we shut the door and that was it," Mr. Feinstein said. "Whatever happens, happens, and it was up to the next group to do the best they could. Plenty of chains have gone out of business."
Dressed in their signature sweaters—Mr. Eisenberg's a pink cable-knit, Mr. Feinstein's a navy-blue V-neck—the two men say they bear some responsibility for the company's struggles. They didn't move fast enough to adapt to the rise of e-commerce, Mr. Eisenberg said. "We missed the boat on the internet," he said.
They also acknowledge they were slow to learn the value of letting go. "I don't know if you should be running a big business when you're in your 80s," Mr. Feinstein said.
They haven't totally stopped paying attention. After visiting a Bed Bath & Beyond store recently, Mr. Feinstein critiqued the dish-towel display. "They're gray and white," he said. "How many are in the package, maybe four? No, it's eight. You want to buy eight gray-and-white kitchen towels?"
Mr. Eisenberg and Mr. Feinstein both grew up in New Bedford, Mass. But they didn't become friendly until later, when they worked at Arlan's, one of the country's first discount retailers.
Mr. Eisenberg's father owned a small store selling basics like underwear and overalls. The family lived in tenements without hot water or central heat, and never owned a car.
He started working 30 hours a week at a luncheonette when he was 14 so his mother could buy food. When he graduated from high school at 16, he got a job as a stock boy at Monarch Clothing Co., a predecessor to Arlan's.
Mr. Feinstein, whose father worked for Arlan's, attended Cornell University, where he met and married his wife, Susan. He skipped graduation because Arlan's was holding a job for him. "When I got there, I said, 'Well, what's the job?' And they said, 'You're going to be a lingerie buyer.' I said, 'What kind of job is that for a fellow who just got married?' There were bouffant petticoats. I went through the stretch-strap bra era."
Arlan's was among a group of New England companies that pioneered discount retailing. The stores sold everything from pajamas to paint at deep discounts. They had centralized checkouts, which was unusual at the time, and stayed open later than traditional department stores.
By the late 1960s, Arlan's was having difficulty competing with more sophisticated rivals such as Kmart Corp., Walmart Inc. and Caldor Inc. By the time they left in 1969, Mr. Eisenberg had become president and Mr. Feinstein vice president of merchandising. Arlan's filed for bankruptcy in 1973 and eventually went out of business.
The pair invested $50,000 each to open the first two Bed 'n Bath stores in 1971, after visiting a similar store in Boston operated by a cousin of Mr. Eisenberg's wife, Mitzi. One store was located in Springfield, N.J., near the Eisenbergs' home. Ms. Eisenberg was one of the first saleswomen. The other was in Cedarhurst, N.Y., near where the Feinsteins lived.
The philosophy was simple: offer name brands at a discount. The stores were small, about 2,500 square feet, and sold towels, linens, bedding and bath accessories.
Bed 'n Bath saved money by not spending on weekly newspaper circular advertising. At first growth was slow. The stores did a few hundred dollars a day in sales and the founders didn't take a salary for the first three years.
Their timing was lucky. Designer sheets were just becoming fashionable. "Before that everybody just bought white sheets," Mr. Eisenberg said.
By the mid-1980s, the company had 20 stores, many of which were around 10,000 square feet, and had expanded to California. One day, a real-estate broker stopped by Mr. Eisenberg's Springfield office and told him that the 50,000-square-foot Huffman Koos store across the street was closing.
"He said, 'You should take that store,' " Mr. Eisenberg said. "I thought, 'That's ridiculous.' And he said, 'Every time you expand and you keep putting more merchandise in, you keep doing better.' "
They leased the space and added pots, pans, hangers and other home goods. They enlisted an advertising agency to help them come up with a new name for their expanded offerings.
"They must have given us 40 names before they came up with Beyond," Mr. Eisenberg said. "As soon as they came up with that name, we said, 'Yep, that's it.' "
They officially changed the name to Bed Bath & Beyond in 1987.
It was the age of the category killer—big-box retailers that dominated a particular segment such as Toys "R" Us Inc., Home Depot Inc. and Linens 'n Things.
Underpinning Bed Bath & Beyond's success was an innovative way of doing business.
In addition to the deliberate clutter, stores were designed with a "racetrack" floor plan that looped around the store so customers would walk by all the merchandise. Instead of grouping shopping baskets at the entrance, they placed them throughout the store.
Messrs. Eisenberg and Feinstein ordered goods and set prices, but gave store managers the autonomy to reorder whatever they wanted, which allowed them to stock their stores according to local tastes.
The company operated on a shoestring budget. It used cardboard boxes as waste baskets. Post-it Notes were considered too expensive. Both men still use scrap paper.
"I've got scrap paper on my desk now," Mr. Feinstein said.
"I've got it in my apartment," Mr. Eisenberg said.
Mr. Feinstein added: "Whenever I have paper, I turn it over and use the other side."
Former employees said the penny-pinching mind-set was a hindrance when it came to investing heavily in technology to prepare the company for e-commerce. The founders disagree.
"If we made an error by not moving fast enough into the internet, it wasn't because we wouldn't spend the money," Mr. Eisenberg said. "It was that we goofed."
"If you told me that some of my grandchildren will get all their dresses on the internet, I would say, 'People like to go out and shop. It's a social thing to do,' " Mr. Eisenberg continued. "We didn't realize fast enough how the internet would have such a major effect on retail."
The frugality extended to marketing. Bed Bath & Beyond didn't run sales and it didn't spend a lot of money on advertising. To drum up business, it used a less-expensive alternative—a coupon offering 20% off any item, which became a signature part of the company's brand identity.
"We used to say, 'The rule at this company is you never say no to a customer,' " Mr. Eisenberg said. "If you feel that you should not do it, then you get somebody else above you and it has to go all the way up to the manager before you'll say no to a customer."
In June 1992, the company went public at $17 a share. The founding partners sold one-third of their holdings at the time. In November of that year, it opened its 42nd store.
The shares would more than quadruple, hitting a high of $80.82 in 2014. Thanks to stock options, many of Bed Bath & Beyond's longtime employees retired as millionaires. On Thursday, the shares closed at $2.52.
Over time, the brand would become part of the cultural conversation. Michael Keaton played a police officer who works a second job as a Bed Bath & Beyond store manager in the 2010 movie "The Other Guys." The chain featured in plotlines on TV shows such as "30 Rock," "Parks and Recreation" and "Broad City," where Abbi, one of the lead characters, is never happier than when in a Bed Bath & Beyond store.
"The best coupon you can get, possibly in the world, is the Bed Bath & Beyond coupon," the actress Kristen Bell told Conan O'Brien in 2012.
The founders were early to the casual-dressing trend, wearing sweaters instead of suits and ties to work long before it became fashionable. "We wore sweaters because that's what our customers wore," Mr. Feinstein said.
As the company grew, the partners divided the labor, with Mr. Eisenberg overseeing operations and finance and Mr. Feinstein looking after merchandising. But they still made all major decisions together.
"If there was something that came to the forefront, and one person said 'yes' and the other person said 'no'—the no wins," Mr. Feinstein said. "The 'yes' can try to change the 'no' to a 'yes.' "
In 2003, they passed the CEO reins to Steven Temares, who had joined the company in 1992 and held various roles, including president and chief operating officer. The founders remained co-chairmen until their departure.
Messrs. Eisenberg and Feinstein said they never had any irreconcilable arguments, which they attribute in part to a decision to limit the role of their children, who could work at the stores but couldn't become corporate officers. Mr. Eisenberg's son Martin was Northeast regional vice president. Mr. Feinstein's sons Richard and Jeffrey were district managers, before leaving to start the Buybuy Baby chain.
"They're all great kids, but they have different abilities," Mr. Feinstein said. "We didn't want one to have a bigger job than another. And then you don't want to go home and the wife's not happy with how they're doing."
"And we thought the employees will feel like, 'I'll never get ahead in this company, because they've got eight kids,' " Mr. Eisenberg said.
Nevertheless, they were accused in 2019 of nepotism by the activists— Legion Partners, Macellum Capital and Ancora Advisors—for two acquisitions Bed Bath & Beyond made of companies that had been started by their sons.
In 2007, the company spent $67 million plus the repayment of $19 million in debt to purchase Buybuy Baby. It spent $1 million in 2017 to buy Chef Central, a specialty cooking and housewares retailer started by Mr. Eisenberg's son Ron.
The founders say their children's involvement was limited to running those subsidiaries and they didn't serve as executive officers.
Bed Bath & Beyond's new management shut down Chef Central. Analysts have applauded the acquisition of the baby chain, which is now more valuable than the flagship brand. It has attracted suitors , including private-equity firm Sycamore Partners, who may purchase the business as part of Bed Bath & Beyond's expected chapter 11 restructuring, people familiar with the situation said.
The activists succeeded in pushing out the founders in 2019 and reconstituting the company's board, which hired Mark Tritton, a former Target Corp. executive, to replace Mr. Temares as CEO.
Mr. Tritton got rid of national brands like KitchenAid mixers and Calphalon cookware and replaced them with private-label goods manufactured for Bed Bath & Beyond. The switch turned off shoppers and revenue shriveled.
Messrs. Eisenberg and Feinstein now spend most of their time and considerable wealth on philanthropy and collecting art.
"We fought like hell to get the name brands," Mr. Feinstein said.
Mr. Tritton also did away with the autonomy of store managers, who were now told to stock their stores according to detailed instructions from the corporate office. "We'd get large quantities of stuff that we couldn't sell," PJ Gumz told The Wall Street Journal last year . She worked at Bed Bath & Beyond for two decades, most recently as a store manager in Irvine, Calif., until the location closed in March.
"If you go to the store and look at what it looks like now and what it looked like before, you see it," Mr. Eisenberg said.
"It's not the same store," added Mr. Feinstein.
Bed Bath & Beyond co-founders Leonard Feinstein, in blue, and Warren Eisenberg, in pink, who were forced out of the company in 2019. MARY BETH KOETH FOR THE WALL STREET JOURNAL
|return to message board, top of board|