The current crisis at Bed Bath & Beyond Inc., which on Thursday reported its lowest second-quarter revenue since 2006, is the culmination of years of management missteps and a dysfunctional corporate culture, according to people who have worked at the company.

The company said sales in the three months ended Aug. 27 fell 28 per cent from a year earlier, the fifth consecutive quarter in which the retailer reported a double-digit fall in revenue. Bed Bath & Beyond said the job cuts and store closings it announced earlier this month are helping to cut costs. To stem the plunge in sales, the company is betting on its plan to discontinue three of its nine private-label merchandise lines and to sell updated versions of the well-known national brands that drew consumers to its stores during its heyday about a decade ago.

Bed Bath & Beyond shares fell as much as 5.4 per cent in New York trading Thursday. The stock was down 56 per cent this year through Wednesday, compared with 22 per cent for the S&P 500 Index.

“Although still very early, we are seeing signs of continued progress as merchandising and inventory changes begin,” interim Chief Executive Officer Sue Gove said in a statement on Thursday. “Regaining market share and enhancing liquidity are our top priorities.”

But Bed Bath & Beyond’s struggles with past strategy shifts bode poorly for its current attempt at an overhaul.

“They’re in a deeper hole today than they were in the past,” said Cristina Fernandez, a Telsey Advisory Group analyst. “You’re executing a turnaround plan when it’s a tough consumer environment.” 

The retailer’s two previous CEOs failed to launch private-label brands that had staying power, undermined by the unrealistic time frames and expectations they set to finish projects, as well as a work environment that put teams at odds with one another and drove employees to tears, according to several people who worked in different parts of the company over the past few years. The accounts below are based on interviews with these people, who asked not to be named because they weren’t authorized to discuss internal company business.

Bed Bath & Beyond’s current pivot back to prioritizing national brands is probably too little, too late, according to the people, as well as investors and analysts. Many customers have already shifted their loyalty to competitors such as Amazon.com Inc. and Target Corp. High staff turnover and successive rounds of layoffs have undermined the morale of those employees at headquarters and stores who are left to execute the turnaround. The esprit de corps worsened after Chief Financial Officer Gustavo Arnal killed himself earlier this month. In addition to Gove at the top, the company now has an interim CFO. A Bed Bath & Beyond spokesperson didn’t respond to requests for comment for this story.

When former CEO Steve Temares, who ran the company from 2003 to 2019, started to move the business into private-label products, including furniture and towels, toward the end of his tenure, the appeal was clear: The business model, in theory, has higher profit margins. By designing and manufacturing items in-house, Bed Bath & Beyond kept more revenue for itself instead of having to pay outside suppliers. 

But the rollout of the private-label strategy was erratic. Temares and some other longtime members of the executive team seemed to only half-heartedly embrace the new private-label strategy and seemed unwilling to shake things up after overseeing so many years of growth in the past. 

Executives would instruct staff to design and order 1,500 to 2,000 couches, for example, at midmarket-to-high-end prices. Then, midway through their development, they would cut order quantities to 200 or fewer items and slash the price, saying cheaper items would probably sell better at Bed Bath & Beyond. The about-face would delay the rollout by months, adding to costs and frustrating the suppliers’ factories. 

Another hurdle was that sometimes the company’s merchants — who buy the items for the retailer to sell — only purchased small quantities of the private-label merchandise that their colleagues had designed and ordered, saying they didn’t think it would sell well. That meant the displays of private-label products online and in stores were sometimes small and inconsistent, undermining efforts to introduce these new brands to shoppers. 

Some of the merchants had been working at Bed Bath & Beyond for years, while many staffers brought on to implement the private-label strategy were recent hires, and that sometimes led to tensions about the best way forward for the company. For example, some of the merchants wanted to cater to the company’s existing, loyal customer base, which tended to be older, while the private-label team was trying to bring in younger, more fashion-forward shoppers.

Temares, in an emailed message, said Bed Bath & Beyond under his tenure “had a well-thought-out and healthy private-label business.” He added: “We are proud of our prioritization of our customers and our performance from inception through 2019.”

When Mark Tritton was appointed to replace Temares in 2019, many staff members had great expectations. They thought the former Target chief merchandising officer would be able to streamline the company’s glut of home goods and improve its private-label offerings. Tritton had overseen Target’s private brands, such as Made by Design and Up & Up. 

Tritton had a keen design sense and championed bold projects that aimed to offer shoppers things they wouldn’t be able to find at Amazon, Target, HomeGoods and others. But he and his team struggled to execute on that vision. Tritton declined to comment for this story.

One hurdle was that Tritton seemed to pull too heavily from his experience at Target, where the private-label design and development teams were much bigger. 

While Tritton listened to staff complaints about the poor quality of Bed Bath & Beyond’s website, upgrades happened too slowly, and the retailer continued to lose customers to competitors with better e-commerce systems. Employees joked that it was easier to find a Bed Bath & Beyond item by searching for it on Google than by looking on the company’s own website. 

The aesthetics of the website were also lacking. To cut down on costs, Bed Bath & Beyond asked many of its suppliers to take photographs of items and upload them directly to the company’s website. That led to mishaps such as one uploaded photo where the supplier captured his own reflection in the item for sale, and another where a high-end couch had some used gaming magazines scattered carelessly in front of it. 

The greatest challenge, though, was the time frame that Tritton and his executive team laid out to unveil the company’s new lines of private-label goods. While Temares had done too little, Tritton tried to do too much, too fast. During the first five months of 2021, Tritton pushed his teams to roll out six new lines, including Our Table, Simply Essential and Nestwell.

That pace is unusual in the industry, because typically companies want to introduce a brand to consumers with a social-media blitz and then work to differentiate it from existing ones in stores and online for at least several months.

The teams working on the private-label goods scrambled to design, order and oversee the manufacturing of thousands of items every three months. Their task was complicated by the supply-chain problems that stalled shipping traffic and delayed the arrival of goods to the US from factories in China. The design and development teams often worked more than 100 hours a week throughout the pandemic, and it was common to see and hear about colleagues crying out of frustration and physical and mental exhaustion. 

Bed Bath & Beyond hired consultancy AlixPartners to help increase productivity. One of the consultants calculated that each member of the design team would need to work even more than the 100 hours they were already clocking weekly to produce the required volume of product. A spokesman for AlixPartners declined to comment. 

When staff asked human resources to hire additional employees to ease the workload, they were told they could hire a few freelancers.