Along with the sun rising in the East, one of the things you could always count on was a 20%-off coupon from Bed Bath & Beyond (NASDAQ: BBBY) regularly landing in your mailbox. The blue-and-white discount flyers are a ubiquitous reminder to shop the home goods store, and though they have driven traffic for the retailer, they also served to undermine its profits.
Now, however, Bed Bath & Beyond may be preparing to do away with those promotions, or at least make you pay a fee for the privilege of getting them. Business Insider reports the retailer began beta-testing a new member loyalty program, Beyond+, that could eventually lead to its coupons' demise.
This is actually a really smart move, but convincing customers who have been conditioned to expect coupons in their mailbox -- and who pretty much only shop at Bed Bath & Beyond with at least one in hand -- that they should pay to get their discounts may be not be so easy. It will, however, be essential.
Gross margin narrowed in the second quarter, and though it shrunk less than it has in prior periods, it was the continuation of a trend that has been playing out for some time due to the retailers promotional technique. It won't eliminate that discount expense by converting to the loyalty program, but it will minimize the impact.
It's a matter of rewiring consumers' thought processes, because in reality, this loyalty program would be little different from Amazon Prime, under which customers who pay $99 a year for membership are essentially paying up front for free delivery. The home goods retailer's customers would be paying to get discounts whether they shopped in store or online, where they would also get free shipping.
Still, changing consumer habits will be hard. When J.C. Penney tried to implement an eminently sensible everyday low-price policy -- an eliminate a "fake pricing" sales environment in which items were marked up just so they could be discounted -- its customers abandoned it in droves, and nearly bankrupted the company. Though people would have mostly been paying less for their merchandise, J.C. Penney found it couldn't overcome its clienteles' ingrained desire for the appearance of a special deal.
Naturally, Bed Bath & Beyond hopes to avoid a similar gut-wrenching experience; it's testing the loyalty program in limited markets to see what the reaction will be. Regardless of what those tests reveal, the coupons won't disappear just yet. In the retailer's earnings conference call with analysts two weeks ago, CEO Steve Temares said that ahead of the Christmas shopping season, the home goods chain would be pulling out all the stops on promotions to boost sales. "Our expectation is that it will be a fairly promotional back end of the year," he said.
One day though, it's possible Bed Bath & Beyond coupons won't be clogging up your mailbox anymore.
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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. The Motley Fool recommends Bed Bath and Beyond. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.