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Business Troubled retail outposts Bed Bath & Beyond and One Kings Lane join...

Troubled retail outposts Bed Bath & Beyond and One Kings Lane join forces

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Bed Bath & Beyond and One Kings Lane are each home furnishings sellers with a unique set of problems. The big-box giant has been watching its prolific coupons eat into its profit margins and has been slow to adapt to the e-commerce era. One Kings Lane, a digital destination for expensive furniture, has been forced to slash jobs as it tries to find its way at a moment when its flash-sale model has lost an aura of cool.

Now, the troubled retailing outposts are joining forces: Bed Bath & Beyond announced this week that it is purchasing One Kings Lane for a price that it described only as “not material,” suggesting that the start-up once valued at $912 million in 2014 is now worth much less. The tie-up appears to be a bet by the furnishing brands that their whole will be greater than the sum of their parts.

Bed Bath & Beyond has been working to shore up its online presence, investing in infrastructure and improvements to its website functionality and mobile apps. And by some measures, the efforts appear to be helping: The retailer’s online sales growth in the most recent quarter was 25 percent. That easily outpaces the 14 percent online sales growth that researchers at eMarketer forecast the furnishings category will see overall in 2016. And yet, Bed Bath & Beyond’s online sales growth has slowed dramatically. In the quarterly earnings it reported in June 2015, year-over-year digital growth was “in excess of 35 percent,” and three quarters prior to that, it reported greater than 50 percent growth.

Seth Basham, a retail analyst at Wedbush Securities, said he doesn’t think the acquisition of One Kings Lane is a “game-changer,” but said it could prove beneficial for Bed Bath & Beyond.

“We don’t think that they’re going after the technology, we think they’re going after the merchandising,” Basham said. Bed Bath & Beyond does a big business in household items such as bedding and kitchen goods, but doesn’t have quite as strong an assortment in furniture such as couches and armchairs. One Kings Lane could help on that front.

Still, One Kings Lane doesn’t come to the deal from a position of particular strength in the marketplace. Earlier this year, the company let go of 25 percent of its staff. Brad Thomas, a retail analyst at Keybanc Capital Markets, estimates the young company only saw 3 percent revenue growth last year. Meanwhile, a rival online-only furnishings seller, Wayfair, was on a rocket ride: Its revenue was up 71 percent last year. So while Thomas said he didn’t see much downside risk to Bed Bath & Beyond in the One Kings Lane acquisition, he said he’d prefer to see “investments and buyouts of some of the best-in-class competition, not the second-tier players.”

“This is not like Bed Bath is buying Facebook, it’s more like they just bought Myspace,” Thomas said.

The chief executive of One Kings Lane, Dinesh Lathi, praised the deal in a press release.

“This is a tremendous opportunity for our customers, as well as our employees and business partners, to benefit from additional support and resources and gain exposure to new customers,” Lathi said.

In that way, the deal has something in common with other recent retailing acquisitions: In January, the parent company of Saks Fifth Avenue bought flash-sale pioneer Gilt for a fraction of the e-commerce site’s once-soaring valuation. Last year, QVC’s parent company paid $2.4 billion to acquire Zulily, a deals site that largely targets millennial moms. In each of these cases, the gamble was that the online upstart could benefit from getting closer to the more established retailers’ customer base.

That One Kings Lane apparently sold at a discount to its past valuation again raises questions about the durability of the flash-sale model. Once a hot area for investment, it seems that many of the key players in this space are finding it hard to survive as a standalone business centered on that strategy.

Bed Bath & Beyond’s stock was up almost 3 percent on Wednesday. However, the retailer’s stock is down some 37 percent over the last year.

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