How much time will a lifeline loan buy?Credit…Michael Reynolds/EPA, via Shutterstock
Bed Bath & Bruised
Bed Bath & Beyond confirmed today that it has taken out more than $500 million in new financing, including a $375 million loan from Sixth Street, sorely needed cash to help drive the retailer’s turnaround. Its fall from grace has been spectacular: The company was worth around $17 billion in 2013; today, it’s worth less than $1 billion, with roughly $100 million in cash. (Its shares dropped more than 26 percent in premarket trading this morning after the company disclosed plans to issue new stock, seeking to take advantage of a meme-stock frenzy.) This isn’t its first attempt at a turnaround.
The retailer has struggled with inventory and supply chain woes for years — in part, analysts have said, because of underinvestment. In 2019, three activist investors pushed for the ouster of the company’s C.E.O. at the time, and they demanded that Bed Bath & Beyond be more like Target: better products, scores of private label options and a sophisticated online shopping system. Later that year, the company plucked Mark Tritton, Target’s chief merchandiser, as its next C.E.O. But it wasn’t long before he had another challenge: the Covid-19 pandemic.
Bed Bath & Beyond had too many things to fix all at once, analysts say. Under Tritton’s first two years, Bed Bath & Beyond promised a revamped website, new private label brands, streamlined inventory and modernized stores. It committed $300 million to improve its supply chains to better stock its shelves and announced a $1 billion stock buyback program. But it became too much to manage those changes while also weathering the pandemic, which had added strain and costs to both its supply chain and e-commerce business. And only after decluttering stores did executives realize that customers actually preferred to feel as if they were on a treasure hunt for goods. Tritton stepped down in June, the same day that Bed Bath & Beyond announced a 25 percent drop in sales.
The loan buys Bed Bath & Beyond only time. Sixth Street’s financial support previously helped buttress the parent company of the footwear retailer DSW. But emergency loans typically also come with the burden of higher interest payments. And the retailer will need to assuage the concerns of investors and suppliers, whose skittishness about the retailer’s financial prospects have led some to stop shipments of its products.
Bed Bath & Beyond also said it will close 150 of its roughly 1,000 stores, a retail playbook employed by the likes of Sears and Toys “R” Us, in a race to cull costs that could become a vicious cycle if sales don’t grow quickly enough. “This really is the last roll of the dice for them,” said Neil Saunders, managing director of retail at GlobalData. “You can’t keep going through reinvention after reinvention and getting it wrong.”
HERE’S WHAT’S HAPPENING
California passes a sweeping online child safety bill. The legislation is the first in the U.S. to require apps and websites to install guardrails for users under 18. It drastically exceeds federal protections, though critics say the bill is too broad.
Goldman Sachs eases Covid workplace protocols. The Wall Street bank told U.S. employees — except for those in New York City — that it will no longer require them to be vaccinated or wear masks, citing “significantly less risk of severe illness.” The change was announced days before Goldman expects workers to return to the office five days a week.
Google bars Donald Trump’s social network from its app store. A review of the former president’s Truth Social platform flagged user content that contained physical threats and incitements to violence. It’s the latest instance of Google basing content-moderation decisions on those factors.
Snap reportedly plans to lay off 20 percent of its employees. The parent company of Snapchat will begin the job cuts today, with divisions like hardware expected to take a hit, according to The Verge. The layoffs come as Snap’s stock has fallen nearly 80 percent this year.
Pressure to regulate crypto gets intense
If you want to track all of the regulatory and legislative attempts to rein in crypto fraud, you’re going to need a scorecard.
The House Committee on Oversight and Reform yesterday sent letters to the C.E.O.s of major exchanges like Coinbase and FTX, demanding answers and documents on various policies — while also rebuking the financial regulators who are jostling for jurisdiction as crypto investors continue to be defrauded.
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
What causes inflation? It can be the result of rising consumer demand. But inflation can also rise and fall based on developments that have little to do with economic conditions, such as limited oil production and supply chain problems.
Is inflation bad? It depends on the circumstances. Fast price increases spell trouble, but moderate price gains can lead to higher wages and job growth.
How does inflation affect the poor? Inflation can be especially hard to shoulder for poor households because they spend a bigger chunk of their budgets on necessities like food, housing and gas.
Can inflation affect the stock market? Rapid inflation typically spells trouble for stocks. Financial assets in general have historically fared badly during inflation booms, while tangible assets like houses have held their value better.
“Without clear definitions and guidance, agencies will continue their infighting and will be unable effectively to implement consumer and investor protections related to cryptocurrencies and the exchanges on which they are traded,” Representative Raja Krishnamoorthi, an Illinois Democrat, wrote in letters to the S.E.C., the Treasury, the C.F.T.C. and the F.T.C.
Krishnamoorthi also criticized crypto exchanges, including Binance.US, Coinbase, and FTX, saying these firms “allow digital assets to be listed with little or no vetting,” leave technical vulnerabilities unaddressed, and don’t monitor for illicit activity or do enough to protect investors. He cited a June F.T.C. report projecting more than $1 billion in losses from digital asset scams in 2022. The F.B.I., in a separate warning to investors on Monday, cited an April report from the data firm Chainalysis showing $1.3 billion lost to hacks, exploitation and scams across the blockchain in the first quarter of this year alone, mostly on decentralized finance (DeFi) platforms.
“Despite these vulnerabilities, the federal government has been slow,” the letters say. Krishnamoorthi blamed insufficient and unclear regulations, and the fact that the authorities are still debating basic definitions. He also asked blockchain’s most hotly contested question: Should cryptocurrencies be treated as commodities, securities or both? Responses are due on Sept. 12 and are meant to inform potential new rules and legislation. Meanwhile, lawmakers are also jostling for position: The House Agriculture Committee recently proposed to make the C.F.T.C. the lead crypto regulator, and a stablecoin bill is expected soon from the House Financial Services Committee.
Europe braces for a “Putin recession”
Europe’s economic outlook continues to go from bad to worse. Consumer prices on the continent climbed 9.1 percent year-on-year in August, according to data released this morning. That shows inflation continues to exceed economists’ forecasts, as the region grapples with an energy and food crisis driven largely by Russia’s invasion of Ukraine.
The euro and European stocks dipped on the latest C.P.I. inflation data, as investors brace for higher prices and slower growth across the eurozone.
While consumers and businesses in much of the world are struggling with soaring prices, Europe’s path looks markedly worse than other major economies. Prices in the U.S. appear to have peaked, for example, while economists see more pain ahead for Europe, including Britain, through the autumn and into next year.
Economists give higher odds for a recession in Europe than in the U.S., as inflation runs at a 40-year high in areas like Germany. Holger Schmieding, the chief economist at Berenberg Bank, told DealBook that the U.S. will most likely suffer a shallower downturn in the months ahead as the Fed raises rates to cool off consumer demand. The eurozone and Britain, by contrast, will see sharper recessions.
“Our recession is a Putin recession, brought on by the higher prices in natural gas,” Schmieding said.
This morning, the closely watched October TTF natural gas contract, a benchmark rate for European natural gas, rose after Russia shut off the flow of gas to the Nord Stream 1 pipeline, a vital supply line for Europe. The TTF traded at 271.11 euros ($270.58) per megawatt-hour, a 10-fold increase over the past 12 months. Berenberg calculates that for every €100 rise in natural gas prices, consumer purchasing power falls by 5 percent.
Berenberg predicted that inflation in Europe would not peak until the first quarter of 2023. “It will be a winter recession,” Schmieding said. “We are paying through the nose for imports of natural gas.”
“Google has drawn enough of a line in the sand of either you’re with us and you’re on board or you’re out.”
— Claire Stapleton, who resigned from Google in 2019 after accusing the tech giant of retaliating against worker activism. Ariel Koren, a marketing manager who publicly opposed Google’s work with Israel’s military, recently quit on similar grounds.
How pizza rolls survived the pandemic
Totino’s frozen pizza rolls — the bite-size snack that became even more popular during the pandemic — have 21 ingredients. Late last year, General Mills, the giant food company that owns Totino’s, started running out of them.
Supply chain delays and rising costs meant individual ingredients were either nearly impossible to find, or prohibitively expensive to procure for a product that retails at $10 for a bag of 100. The result was a pandemic-induced paucity of pizza rolls. By February, Totino’s specialty was a no-show in supermarkets across the country.
The pizza roll conundrum is a microcosm of what has gone on throughout corporate America. It’s also a story that isn’t over. “All of these wrinkles are cascading through the entire food system, and I don’t think anyone is banking on it resolving itself in the next 12 or 18 months,” said Joe Colyn, a partner at JPG Resources, which works with food companies and their supply chains.
General Mills was forced to change how it makes pizza rolls, and ultimately its business model, reports The Times’s Julie Creswell.
The company formed a team of scientists, supply chain managers and procurement experts who met daily to address supply-chain issues.
It developed 25 ways to make the pizza roll, each with slight variations of ingredients.
One solution was to swap cornstarch for tapioca starch, when the latter became harder to find.
It worked. By spring, pizza rolls had returned in plentiful supply.
Industry veterans say the overhaul may stick. Food manufacturers, after years of whittling down suppliers to reduce costs and improve quality control, weren’t ready for the shipping problems, labor shortages and shifting consumer behavior caused by the pandemic. They are now coming up with multiple formulations for key products, alternative suppliers, and storage spaces for must-have ingredients. Climate change means new ways of doing business may be needed long after the pandemic.
“Just-in-time deliveries don’t work anymore,” Jon Nudi, General Mills’ president of North America retail, told The Times.
THE SPEED READ
Senior executives at The Washington Post have weighed buying other news organizations, including The Associated Press, The Economist and The Guardian. (NYT)
EQT, the Swedish private equity giant, has raised $15 billion so far for its latest fund, despite a slowdown in leveraged buyouts. (Bloomberg)
Bondholders of Evergrande have reportedly proposed their own plan to restructure the debt of the embattled Chinese real estate developer. (FT)
Three New York City pension funds pushed Mastercard and American Express to improve their tracking of gun sales. (Bloomberg)
Liz Truss, the front-runner to become Britain’s next prime minister, has stirred up concern with her potential plans to reduce the Bank of England’s independence. (CNBC)
“French Tax Collectors Use A.I. to Spot Thousands of Undeclared Pools” (NYT)
Best of the rest
The average life expectancy in the U.S. dropped last year to 76 years, down from 79 in 2019, in the biggest decline in a century. (NYT)
Inflation comes to Wall Street: Bloomberg L.P. is raising the price of its trading terminals by 9 percent, to $30,000 a year. (FT)
Jackson, Miss., is running out of potable water, after floods overwhelmed its inadequate infrastructure. (NYT)
“How Two Mexican Drug Cartels Came to Dominate America’s Fentanyl Supply” (WSJ)
Mikhail Gorbachev, who oversaw the collapse of the Soviet Union and remade global politics, has died. He was 91. (NYT)
Jordyn Holman contributed reporting.
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