Bed Bath & Beyond to make physical store return via deal with Kirkland’s
Home décor retailer Kirkland’s has entered into a deal that will result in the return of Bed Bath & Beyond brick-and-mortar stores to the U.S. retail landscape.
Beyond, whose portfolio includes Bed Bath & Beyond, Zulily, Overstock and other online brands, will invest $25 million in a combined debt and equity transaction to strengthen Kirkland’s capital position and fuel growth initiatives.
As part of the agreement, Kirkland's will become Beyond's exclusive brick-and-mortar operator and licensee for new, smaller-format “neighborhood” Bed Bath & Beyond locations nationwide. The company is planning to open its first neighborhood Bed Bath & Beyond stores in 2025, with an initial pilot up to five stores.
The stores will feature a curated assortment of Bed Bath & Beyond’s legacy vendor partners while also leveraging Kirkland's store operations expertise and its brick-and-mortar footprint to identify potential store conversion opportunities or new markets, according to the press release on the new partnership (Kirkland’s currently operates 325 stores in 35 states).
The deal with Kirkland’s comes on the heels of Beyond’s partnership with The Container Store. It includes a $40 million investment from Beyond in the home storage and organizational products retailer and the addition of Bed Bath & Beyond products at The Container Store.
Bed Bath & Beyond stores went dark in 2023 after its parent company declared bankruptcy. The brand’s intellectual property was acquired by Overstock.com, which subsequently changed its names to Beyond.
"An omnichannel approach to Bed Bath & Beyond is quintessential to its success," said Marcus Lemonis, executive chairman of Beyond. "We understand that retail is both an art and a science and have vetted the management team and infrastructure of Kirkland's Home as an ideal organization to help bring the iconic Bed Bath & Beyond brand back. The key to retail is efficiency in assortment, space management, sourcing and merchandising, all while recognizing that smaller, tighter footprints with significantly lower fixed cost models is a winning recipe.”
The partnership also includes expanding the reach of Kirkland's Home product assortment — including furniture, rugs and textiles and its core décor business — across the expanded store network, Beyond's various websites and other marketplaces.
“We expect the investment from Beyond will not only enhance our financial performance but also provide meaningful opportunities to introduce Kirkland's to new customers in a cost-efficient manner while we continue to re-engage our core customer and extend our reach across multiple formats,” said Kirkland’s CEO Amy Sullivan. We plan to leverage the core strengths of the Beyond team by accessing its digital and technical expertise."
Additional details of the agreement are below.
•The partnership will leverage an enhanced supply chain network to reduce costs, improve inventory management and drive revenue growth.
•Kirkland's will participate in Beyond's consumer data collective, global loyalty program, financial services, and consumer protection products, with the expectation to drive traffic and revenue while increasing conversion and lower both customer acquisition and retention costs.
•Beyond will support Kirkland's digital transformation to drive improvements in e-commerce technology to improve customer experience and conversion driving profitable revenue growth in this channel.
Transaction terms
On Oc. 21, Kirkland's entered into a $17 million term loan credit agreement with Beyond, $8.5 million of which consists of a convertible note that will convert into Kirkland's common stock at a price of $1.85 per share (the “conversion price”) upon the approval of Kirkland's shareholders. Also on Oct. 21, the parties entered into a subscription agreement to which Beyond will purchase an additional $8 million of Kirkland's common stock at the conversion price upon the approval of Kirkland's shareholders.
The parties also entered into a seven-year collaboration agreement to which Beyond will earn a collaboration fee equal to 0.25% of Kirkland's quarterly retail and e-commerce revenue starting in Kirkland's first fiscal quarter of fiscal 2025 for the remaining term of the agreement and an incentive fee equal to 1.5% of Kirkland's incremental growth in e-commerce revenue during its term.
Following the closing of the common stock purchase of $8 million, Beyond will be able to nominate two directors to Kirkland’s board of directors for as long as it owns at least 220% of Kirkland’s outstanding shares and one director for as long as it owns at least 5% of Kirkland’s outstanding shares.
Additionally, the parties entered into a trademark license agreement to which Beyond will earn a store royalty fee equal to 3% of net store sales generated under the Bed Bath & Beyond banner during the term of the collaboration agreement, with that rate increasing to 5% of net store sales after the agreement has terminated, if the locations are still operating.
Proceeds from the term loan portion of the transaction will be used by Kirkland's to repay its existing term loan with Gordon Brothers, including prepayment fees, transaction expenses, and to reduce borrowings under Kirkland's existing revolving credit facility with Bank of America, N.A.
"I am appreciative of the management teams at both Kirkland's and Beyond for their collaborative vision,” said John Lewis, co-founder, CEO and CIO of Osmium Partners, which is Kirkland’s largest shareholder. “We believe this venture will drive significant shareholder value as the teams unlock the potential for the Bed Bath & Beyond brand through new store growth and leverage the strong merchandising and store operations that Kirkland's has continued to reinforce over the past year during its strategic repositioning."
