Bed Back, & Beyond Bankruptcy! Bed Bath & Beyond Makes a Comeback.

Oct 28, 2024 • 15 min read

In a surprising turn of events, home décor retailer Kirkland's has struck a deal that will bring Bed Bath & Beyond back to the U.S. retail landscape. The partnership marks a significant revival for the once-dominant home goods giant, which shuttered all its stores in 2023 after declaring bankruptcy.

Under the agreement, Beyond—the parent company that includes Bed Bath & Beyond, Zulily, Overstock, and other online brands—will invest $25 million in a combined debt and equity transaction to bolster Kirkland's capital and fuel growth initiatives. As part of this strategic alliance, Kirkland's will become Beyond's exclusive brick-and-mortar operator and licensee for new, smaller-format "neighborhood" Bed Bath & Beyond stores across the nation.

The first of these neighborhood stores is slated to open in 2025, with an initial pilot program launching up to five locations. These stores will feature a curated selection from Bed Bath & Beyond's legacy vendor partners, leveraging Kirkland's expertise in store operations and its existing footprint to identify potential store conversions or new markets. Currently, Kirkland's operates 325 stores in 35 states.

Marcus Lemonis, executive chairman of Beyond, expressed enthusiasm about the partnership: "An omnichannel approach to Bed Bath & Beyond is quintessential to its success. 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."

The collaboration aims not only to revive the Bed Bath & Beyond brand but also to expand Kirkland's product assortment—including furniture, rugs, textiles, and core décor items—across the new store network, Beyond's various websites, and other marketplaces.

Amy Sullivan, CEO of Kirkland's, highlighted the mutual benefits: "We expect the investment from Beyond will not only enhance our financial performance but also provide meaningful opportunities to introduce Kirkland's to new customers in a cost-efficient manner while we continue to re-engage our core customer and extend our reach across multiple formats. We plan to leverage the core strengths of the Beyond team by accessing its digital and technical expertise."

This deal follows Beyond's recent partnership with The Container Store, which included a $40 million investment and the addition of Bed Bath & Beyond products to The Container Store's offerings. The strategic moves indicate Beyond's commitment to revitalizing the Bed Bath & Beyond brand through diverse retail channels.

Transaction Details

On October 21, Kirkland's entered into a $17 million term loan credit agreement with Beyond, with $8.5 million consisting of a convertible note that will convert into Kirkland's common stock at a price of $1.85 per share upon shareholder approval. Additionally, Beyond agreed to purchase an extra $8 million of Kirkland's common stock at the same price, pending shareholder approval.

The partnership also includes a seven-year collaboration agreement where Beyond will earn a collaboration fee equal to 0.25% of Kirkland's quarterly retail and e-commerce revenue starting in the first fiscal quarter of 2025. There is also an incentive fee of 1.5% based on Kirkland's incremental growth in e-commerce revenue during the agreement's term.

Following the $8 million common stock purchase, Beyond will have the right to nominate two directors to Kirkland's board as long as it owns at least 20% of the outstanding shares and one director if it owns at least 5%.

An additional trademark license agreement grants Beyond a store royalty fee equal to 3% of net store sales under the Bed Bath & Beyond banner during the collaboration term, increasing to 5% if the agreement ends and the stores continue operating.

Proceeds from the term loan will be used by Kirkland's to repay its existing term loan with Gordon Brothers—including prepayment fees and transaction expenses—and to reduce borrowings under its revolving credit facility with Bank of America, N.A.

Market Impact and Future Outlook

The revival of Bed Bath & Beyond's physical stores is a significant development in the retail industry, particularly as many brands have shifted focus to online platforms. The move suggests a renewed confidence in brick-and-mortar retail, especially with a leaner, more efficient store model.

John Lewis, co-founder, CEO, and CIO of Osmium Partners—Kirkland's largest shareholder—praised the collaboration: "I am appreciative of the management teams at both Kirkland's and Beyond for their collaborative vision. We believe this venture will drive significant shareholder value as the teams unlock the potential for the Bed Bath & Beyond brand through new store growth and leverage the strong merchandising and store operations that Kirkland's has continued to reinforce over the past year during its strategic repositioning."

The partnership is expected to leverage an enhanced supply chain network to reduce costs, improve inventory management, and drive revenue growth. Kirkland's participation in Beyond's consumer data collective, global loyalty program, financial services, and consumer protection products is anticipated to drive traffic and revenue while increasing conversion rates and lowering customer acquisition and retention costs.

Beyond will also support Kirkland's digital transformation, aiming to improve e-commerce technology and enhance customer experience, thereby driving profitable revenue growth in this channel.

A Strategic Move in Retail Real Estate

The reintroduction of Bed Bath & Beyond stores could have a ripple effect on retail real estate, potentially increasing demand for retail spaces suitable for these smaller-format stores. With Kirkland's existing presence in 35 states, there may be opportunities to convert current locations or identify new markets, impacting local economies and commercial real estate development.

The collaboration between Kirkland's and Beyond represents a strategic effort to blend traditional retail with modern, data-driven approaches. By focusing on efficiency and leveraging each other's strengths, the partnership aims to navigate the challenging retail landscape and meet evolving consumer preferences.

As the first neighborhood Bed Bath & Beyond stores prepare to open in 2025, consumers and investors alike will be watching closely to see how this iconic brand reinvents itself in a rapidly changing market.