The founders of Bed Bath & Beyond Inc. are based in Palm Beach, Florida. The company specializes in home goods and operates over 1,000 stores across the United States.
We're at the Four Seasons Resort this month, chatting about how they turned two small stores into a retail force and pop-culture phenomenon.
Money was tight for the company, so they focused on merchandise rather than advertising or store design. 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. The chain started in the New York City suburbs.
"We were accused of making the stores too crowded," said Warren Eisenberg. "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 have watched from a distance as the value of their creation has declined. In 2019, they were forced off the board by activist investors, and at that time Bed Bath & Beyond had a market value of $2.3 billion and employed 62,000 people. Today, the company is worth less than $300 million and is heading towards bankruptcy.
In an era where many superstar founders and CEOs 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."
The two men say they are partly responsible for the company's struggles. They didn't move quickly enough to adapt to the rise of e-commerce, according to Mr. Eisenberg.
"We missed the boat on the internet," he said.
The founders of the company acknowledge that 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.
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 have roots in New Bedford, Massachusetts. They didn't become friends until they were both employed at Arlan's - one of the first discount retailers in the country.
Mr. Eisenberg's father owned a small store that sold basic items like underwear and overalls. The family lived in a tenement without hot water or central heat, and they never owned a car.
At 14, he began working 30 hours a week at a luncheonette so his mother could afford to buy food. When he graduated from high school at 16, he took a job as a stock boy at Monarch Clothing Co., a predecessor to Arlan’s.
Mr. Feinstein's father worked for Arlan's, so Mr. Feinstein attended Cornell University with the intention of taking over his father's job. However, he met and married his wife, Susan, while at Cornell and skipped graduation to start work at Arlan's.
"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 a New England company that pioneered discount retailing. The store sold items such as pajamas and paint at deep discounts. They had the checkouts grouped together like a grocery store, which was unusual at the time. They also stayed open later than traditional department stores.
By the late 1960s, Arlan's was struggling to keep up with more modern competitors 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. One store was located in Springfield, N.J., near the Eisenbergs’ home, and the other was in Cedarhurst, N.Y., near where the Feinsteins lived. The idea for the store came from a similar store in Boston that was operated by a cousin of Mr. Eisenberg’s wife, Mitzi. Ms. Eisenberg was one of the first saleswomen.
The philosophy was to offer name brands at a discount. The stores were small, about 2,500 square feet. They 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 in sales per day, and the founders didn't take a salary for the first three years.
The timing of their launch was lucky, as 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. The company had expanded to California, and 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 told me that I should take that store," Mr. Eisenberg said. "I thought it was a ridiculous idea. But he said that every time I expanded and put more merchandise in, I did better."
After leasing additional space, the store added pots, pans, hangers, and other home goods to their inventory. They enlisted an advertising agency to help them come up with a new name for their expanded offerings.
"We went through a lot of different options before settling on Beyond," Mr. Eisenberg said. "As soon as we heard that name, we knew it was the right one."
The company officially changed its name to Bed Bath & Beyond in 1987.
This was the era of the category killer, when big-box retailers like Toys "R" Us Inc., Home Depot Inc. and Linens 'n Things dominated their respective markets.
Bed Bath & Beyond's success was built on an innovative business model.
In addition to the deliberate clutter, stores were designed with a 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. This created a "racetrack" effect, encouraging customers to walk by all the merchandise.
Messrs. Eisenberg and Feinstein ordered goods and set prices, but gave store managers the autonomy to reorder whatever they wanted. This allowed them to stock their stores according to local tastes.
The company was very frugal with its money. It used cardboard boxes as waste baskets. Post-it Notes were considered too expensive. Both men still use scrap paper.
"I have scrap paper on my desk now," Mr. Feinstein said.
"I have it in my apartment," Mr. Eisenberg said.
Mr. Feinstein said that he always tries to use both sides of a piece of paper to save resources.
Former employees have said that the company's penny-pinching mindset has been a hindrance to investing heavily in technology to prepare for e-commerce. However, the founders disagree with this assessment.
"We didn't move fast enough into the internet because we goofed, not because we wouldn't spend the money," Mr. Eisenberg said.
"If you told me that some of my grandchildren would 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."
Bed Bath & Beyond is known for its frugality, extending to its marketing efforts. The company doesn't run sales and doesn't spend a lot on advertising. Instead, it uses a less expensive alternative - a coupon offering 20% off any item. This has become a signature part of the company's brand identity.
At our company, we used to have a rule that you never say no to a customer. If you felt like you shouldn't do something, you would get somebody else above you to make the decision. This would go all the way up to the manager before anyone would say no to a customer.
The company went public in June 1992 at $17 a share. The founding partners sold one-third of their holdings at the time. In November of that year, the company 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. However, on Thursday the shares closed at just $2.52.
Over time, the Bed Bath & Beyond brand has 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 has been 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 she's in a Bed Bath & Beyond store.
"The Bed Bath & Beyond coupon is possibly the best coupon in the world," Kristen Bell told Conan O'Brien in 2012.
The founders were early adopters of the casual-dressing trend, wearing sweaters instead of suits and ties to work long before it became fashionable.
According to Mr. Feinstein, “We wore sweaters because that’s what our customers wore.”
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. This arrangement allowed the company to continue to grow and be successful.
"If there is a disagreement between two people and one person says 'yes' and the other person says 'no', the 'no' wins," Mr. Feinstein said. "The 'yes' can try to change the 'no' to a 'yes', but ultimately the 'no' has the final say."
In 2003, the company's founders 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 in the business. Mr. Eisenberg's son Martin was Northeast regional vice president, while Mr. Feinstein's sons Richard and Jeffrey were district managers. The brothers eventually left to start the Buybuy Baby chain.
"All of the children are great, but they have different abilities," Mr. Feinstein said. "We didn't want one child 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."
"We thought that the employees would feel like they would never be able to get ahead in the company if they had eight kids," Mr. Eisenberg said.
Despite this, they were accused of nepotism by activists in 2019 for two acquisitions Bed Bath & Beyond made of companies that had been started by their sons.
In 2007, the company spent $67 million 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 that their children were only involved in running the subsidiaries and that they did not serve as executive officers.
Bed Bath & Beyond's new management has shut down Chef Central. This move has been applauded by analysts, as the acquisition of the baby chain has made the company more valuable than its flagship brand. This has attracted the attention of suitors such as private-equity firm Sycamore Partners, who may purchase the business as part of Bed Bath & Beyond's expected chapter 11 restructuring, according to people familiar with the situation.
In 2019, the activists were successful in pushing out the founders and reconstituting the company's board. They hired Mark Tritton, a former Target Corp. executive, to replace Mr. Temares as CEO.
Mr. Tritton replaced national brands like KitchenAid mixers and Calphalon cookware with private-label goods manufactured for Bed Bath & Beyond. The switch turned off shoppers and revenue shriveled.
"We fought hard to get the name brands," Mr. Feinstein said.
Mr. Tritton eliminated the autonomy of store managers, who were now required to stock their stores according to detailed instructions from the corporate office. This change caused problems for many employees. PJ Gumz, who worked at Bed Bath & Beyond for two decades, most recently as a store manager in Irvine, Calif., until the location closed in March, told The Wall Street Journal last year that the new system often resulted in stores receiving large quantities of merchandise that they could not sell.
"If you compare the store's current appearance to what it looked like in the past, you can see the changes," Mr. Eisenberg said.
"The store has changed," said Mr. Feinstein.
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