Bed Bath & Beyond is finally bankrupt after months—years?—of circling the drain. The company announced its Chapter 11 filing on Sunday and said stores would close by June 30. Bed Bath’s demise is sad in that Blockbustery sort of way, as a vestige of consumerist days gone by. The store where your family bought a bathmat and a blender in 2004 could not keep up in the modern world, and now it will die, and its creditors will fight over what little is left after Bed Bath’s going-out-of-business sales.
For the past few years, Bed Bath has had some lifelines. One was early-pandemic stimulus checks, which did a lot for big retailers in its category. Another was that nostalgia. Bed Bath got the memestock pop in January 2021, when its share price doubled over a few days for reasons that sure did not look very connected to its business fundamentals. Retail investors never quit the stock all the way, and it has periodically gotten big, silly boosts over the past two years and change. Just this past January, Bed Bath’s share price quadrupled at the same time that the company was announcing bad earnings. But most things do not last forever, and Bed Bath’s stock has been on a determined march to zero since February. Concurrently, the company has been running out of money, and now, it says, the music has stopped.
By this time, Bed Bath was probably dead anyway. But its death was not inevitable, and it was certainly not honorable. In postmortems about its demise, wistful writers and shoppers will hold up Bed Bath as an illustrative 21st-century business story about a company failing to get with the times and survive in a different world than the one it grew up in. Fair enough. But Bed Bath stands out for how it elegantly displays other elements of our current business world, namely bizarre stock market dynamics and who pays the price when reality sets in. Bed Bath is a story about calcification, sure, but it is also a story about money being a social construct and people spending it in ways that do not make sense.
What is a company to do when Redditors, Robinhood traders, and other retail investors make their stock into a cult hero? The immediately obvious playbook, and the one that GameStop and AMC followed, is to sell stock into the rally and raise money at a silly valuation. In January 2021, GameStop and AMC were just a fading brick-and-mortar video game store and a theater chain in a streaming-centric and pandemic-struck world. Later that year, they were still those things, but they also had a ton more money to invest back into themselves because they issued more stock when it was marked up, and people bought it.
Bed Bath did the opposite. Since at least the mid-2000s, the chain had made a habit of buying back its own stock, which provides a short-term price boost and (at least in theory) signals confidence. And in November 2021, at the end of a fun year of memestocking, Bed Bath announced an acceleration of its buyback program. It was maybe not nuts either, as Bed Bath’s stock had dipped in the weeks before the announcement and wasn’t as expensive as it would’ve been at the absolute height of its trading. The stock quickly went up, as it does in these cases. But it became clear over the following year that Bed Bath really could’ve used the billion bucks it spent on that buyback for other things, such as investments in its actual business, to make the company more sustainable. Sales were in rough shape. Ryan Cohen, the rich-guy investor whom memestock retail traders tend to follow, said he was getting out of his stake. As the year kept going on, sales kept being bad, and Bed Bath’s walking-around money kept shrinking.
As the situation deteriorated this past winter, Bed Bath did the more typical memestock move and sold some stock. But this move was atypical too, because the company was clearly on the verge of bankruptcy, something it disclosed in its Securities and Exchange Commission filing to sell new stock. In February, the company said it had raised $225 million in the offering and could wind up with an additional $800 million in the next 10 months if things went well. The lead investor, which seemed to be buying all or almost all of the stock, was a hedge fund called Hudson Bay Capital. Why would a sophisticated hedge fund buy the stock of a company that was rather clearly knocking on death’s door? The structure of the deal made it clear: As long as the stock stayed above certain (very low) levels, Hudson Bay would buy millions of dollars of it from Bed Bath at market discounts. It could then sell it at market prices to (presumably) retail investors and make a quick profit. It’s possible that some big financial institutions desperately wanted a piece of pre-bankruptcy Bed Bath, but that’s not usually how financial institutions get big.
Bloomberg’s Matt Levine figures that retail investors had bought about 622 million shares, worth a few hundred million bucks, since January. Those shares are en route to not being worth anything. I do not know exactly who bought how much of Bed Bath’s stock from this hedge fund, but I know that whoever did was not all that preoccupied with the risk factors. Here is Bed Bath’s filing with the SEC from when it was issuing the shares. The word bankrupt appears 78 times, and there are lots of warnings. My favorite is the one that says, “Trading in our securities is highly speculative, and we may be required to file for bankruptcy protection even if the Transactions are fully consummated.” Yes.
Before some retail investor bought Bed Bath stock, did they read the risk factor that more or less said, “We are quite possibly going bankrupt, no matter what you do here”? I don’t know. Eventually the stock got low enough that Bed Bath’s deal with Hudson Bay ended and the company had to go directly to retail investors, and clearly there was not enough money in that banana stand to keep things going. But millions of shares have continued to exchange hands on any given day. Someone’s losing money, and probably not the big financial institution that got into a big deal with Bed Bath a few months ago.
Maybe the retail investors on the verge of a wipeout weren’t crazy, though. In 2020 Hertz filed for bankruptcy and then tried to sell a whole bunch of stock. The SEC made a public fuss about it, though, and the car rental company pulled back almost immediately. Now Hertz is off life support and back to being a functional company with a stock price around $15 a share. It’s got a big Tesla deal and everything. The dude on Robinhood who wanted to buy Hertz shares at a bankruptcy discount in the early pandemic would have made money. Bed Bath’s stock was still trading for a few cents per share on Monday afternoon. Whoever’s buying it will probably never see those cents again, but what do I know?
Perhaps all of this is fine. Maybe companies should be able to sell stock that they know is likely to wind up worthless in short order, as long as they disclose it in the clear terms Bed Bath did, and maybe any efforts to stop it would be a gross overreach by the nanny state. I think that it smells bad, but this is now the shape of our financial markets. It would be inconsistent of all of us to clap like seals at Redditors putting a painful short squeeze on some hedge fund betting against GameStop and then say that the government must step in to save Bed Bath & Believers from themselves.
One facet of Bed Bath’s end has been inarguably gross, though. Given the lengthy run-up to bankruptcy, it was reasonable to hope that the company would have a graceful and humane plan for notifying the employees who worked for it. Instead, CNBC visited a New York Bed Bath on Sunday and found workers “standing around not knowing what to do after the company suddenly cut off in-store pickup and deliveries.” One worker, who said they have worked for 20-plus years at the company, told the network that they would not get severance, saying, “It was just so fast.” At the end of a long and arduous road to corporate death, the one thing Bed Bath managed to do quickly was knife its own employees in broad daylight. Some parts of the Bed Bath saga are new features of business and some, clearly, are old.
