Overstock.com’s purchase of Bed Bath & Beyond’s brand out of bankruptcy initially appeared to be a promising deal. However, as time goes on, doubts about the acquisition’s true value have started to arise.
In June, Overstock (OSTK) paid $21.5 million to acquire Bed Bath & Beyond’s intellectual property and name. By August, the online furniture liquidator had rebranded itself as Bed Bath & Beyond, recognizing the popularity and recognition of the consumer brand. The company’s corporate entity, however, continues to be known as Overstock.com.
“Overstock has an excellent business model that doesn’t align with its current name,” explained CEO Jonathan Johnson in August. “Bed Bath & Beyond is a well-known and beloved consumer brand that needed modernization due to its outdated business model.”
Initially, the move was met with widespread approval. From the day the company announced its bid on Bed Bath & Beyond to the day the name change was completed on August 1, Overstock’s stock price soared by 76%.
However, investor enthusiasm has since waned. The stock has declined by 52% since August 1, following an update on the progress of the corporate identity change that the company released on September 6. While there were some positive improvements in web traffic and active customer numbers, they fell short of Wall Street’s expectations.
BTIG analyst Marvin Fong commented on the situation, stating, “The BB&B name holds advantages over Overstock, such as higher brand awareness and a stronger association with home goods in consumers’ minds. However, it also carries undeniable baggage from BB&B’s years of decline, which likely harmed its brand value.”
Fong initiated coverage on Overstock with a Neutral rating and did not specify a price target for the shares. On Thursday, the stock experienced a slight dip of 0.6%, closing at $17.85.
As of now, Overstock has not provided a comment on the matter.
Bed Bath’s Challenges and Overstock’s Rebranding Strategy
As Overstock takes over Bed Bath, industry experts are questioning the viability of this bold move. While Overstock had its own challenges, its core furniture and home furnishings business did not directly compete with retail giants like Amazon.com, Walmart, and Target. These industry giants offer additional conveniences like same-day delivery and in-store pickup, which Overstock lacks.
Moreover, Amazon, in particular, has the advantage of being able to undercut Overstock’s prices. Currently, Bed Bath’s prices are competitive, but this strategy may be impacting the company’s profit margins as it tries to establish itself in a saturated market.
Recognizing the importance of winning back customers for the success of the rebranding, Overstock has embarked on an aggressive promotion campaign. According to estimates, Bed Bath had nearly 20 million active customers in its last year of operation, half of whom made at least one online purchase in the past year. At its peak, Bed Bath boasted close to 40 million shoppers.
While the leadership team acknowledges that these initiatives may impact profitability in the short term, there are concerns about how long it will take for these efforts to yield positive results. Analysts worry that customer acquisition may be slower than Overstock hopes, potentially extending the investment phase beyond the initially anticipated few quarters.
Despite these challenges, Overstock possesses a solid balance sheet and significant cash reserves, providing a strong foundation for growth. Additionally, the company is expected to optimize its marketing expenses in the future.
Overall, Overstock inherits both a valuable legacy brand and substantial challenges from Bed Bath. Time will reveal whether the company can successfully navigate these hurdles and secure long-term growth.
