Retail

Will Members-Only Bed Bath & Beyond Be Able To Compete With The Coupons?

Coupons — the old-school kind made out of paper — are pretty much a vestige of 20th century commerce that are waiting patiently to die out with their users. This is the conventional wisdom. Coupons were retail's low-tech discounting solution in a world with Groupon, promo codes and Prime Day. In a retail reality where everything is always on sale, coupons were the clever method by which brick-and-mortar shops drew in customers with deals.

But the modern world is post-coupons — obviously. Because everything is always on sale and because there are any number of ways to collect digital coupons and discounts, who needs all the extra paper?

Such is the logic, we imagine, behind Bed Bath & Beyond's recent choice to pull the plug on 20 percent-off coupons in favor of pushing a membership program à la Amazon Prime.

A cheaper membership program, to be sure — it only costs $29 a year for a 20 percent discount on all purchases and free shipping from the site — but a charge nonetheless for a consumer population that has, in recent years, been asked to sign on for a lot of charges. Amazon Prime can be bought once a year for $99, or one can pay a bit extra and shell out $9.99 per month. There is also Netflix, Hulu, Dollar Shave Club, Birchbox — we could go on and on, but the point is that there are all kinds of retail operations hoping to prove to consumers that not only are they worth buying from, they are worth pre-committing to. The good news is that Crate and Barrel is only asking for a yearly payment; the bad news is an increasing body of data from customers shows that they may be reaching their saturation point with membership models.

So, why take the risk? Especially when, as Bed Bath & Beyond CEO Steven Temares recently acknowledged, the coupon is working.

“The coupon is clearly and has been strongly associated with us,” the CEO said on the retailer’s recent earnings call. “But really, we need to be working, and we are working on becoming a lot more intelligent about our marketing and making it much more personalized.”

Coupons may work, but they come at a rather high price for Bed Bath & Beyond, according to various analysts. And in a big way, causing a shrink in the bottom line for the last 15 quarters running. And those losses are catching up, with share price declining about a quarter this year. The more cost-effective — and, in fact, revenue-generating — model that is membership hopes to stem that tide — and soon. During Q3, Bed Bath & Beyond reported yet more increases in coupon use, though decreased in amount.

"The advantage is that customers who have 'paid' for a discount are actually more likely to come in and claim it, which means more spend. We've observed that pattern time and time again — at wholesale clubs, Barnes & Noble — consumers who come for a discount don't come back unless there is a discount. Customers who have invested in a discount tend to reappear," Laurie Walden of Dunn Retail Associates told PYMNTS.

Walden further noted that Beyond+ — the membership program — is still in the invite-only phase, "which is a fashionable way of saying beta testing. We'll see how much of this will change when it leaves that phase."

For now, testing is ongoing with an unknown number of member participants. So far, Bed Bath & Beyond has been pretty close-mouthed on the details of the program — past acknowledging it exists and touting how soon to be beloved it is. It also noted that, for the immediate future, coupons are safe.

“Our coupon policy remains consistent, as we continue to believe that the Bed Bath & Beyond coupons are an important benefit we provide to our customers,” a spokeswoman said.

The program also provides the potential to take away benefits from competitors. Analysts noted that, with a 20 percent discount across the board, Bed Bath & Beyond would be 13 percent cheaper than Amazon, on average, and in a way that would be hard for Amazon's price matching software to respond to.

But there remains the problem of signing on members in a world full of paid memberships. Prime is expensive but comes with a video and music streaming service, among other goodies. What Bed Bath & Beyond is offering is much more narrow. The program will also work best for higher-spending customers, as the discounts "pay off" at the $145 spent per year mark. The good news there is that the math is still in Bed Bath & Beyond's favor, since its average customer visits twice a year and spends $120 per trip.

But perhaps the biggest issue will be the love of the coupons themselves.

One shopper commented on Facebook:

“What am I going to do with the 30,000 coupons I’ve been hoarding?”

That member noted that, with over a decade of coupons she has been hoarding — and using strategically to make major purchases over the years — she has no real need to join the membership program and kind of doesn't see the point.

“I don’t buy a ton of stuff there, and when I do, I have my coupons.”

But then, customers like that aren't a major profit driver for Bed Bath & Beyond. The hope perhaps is to draw in customers who want to shop a bit more often who are unlikely to hoard coupons.

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NEW PYMNTS STUDY: ACCELERATING THE REAL-TIME PAYMENTS DEMAND CURVE – NOVEMBER 2020

About: Accelerating The Real-Time Payments Demand Curve:What Banks Need To Know About What Consumers Want And Need, PYMNTS  examines consumers’ understanding of real-time payments and the methods they use for different types of payments. The report explores consumers’ interest in real-time payments and their willingness to switch to financial institutions that offer such capabilities.

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