Off-price retailers to get cheap inventory and real estate from Bed Bath & Beyond's bust, BofA says

Published Tue, May 2 202311:33 AM EDTUpdated Tue, May 2 202311:38 AM EDT

When Bed Bath & Beyond shuts its doors for good, certain retailers should benefit from both the real estate and inventory opportunities, Bank of America wrote in a note Tuesday. Bed Bath & Beyond will close its remaining 360 namesake and 120 Buy Buy Baby locations by June 30 after filing for Chapter 11 bankruptcy protection last week. Since the storefronts are largely in high-traffic suburban areas, the locations are attractive to retailers as shoppers return to stores after Covid. "Stores average 30k square feet and are located in ideal off mall or strip center spots," said analyst Lorraine Hutchinson. In addition, its assortment of home decor and baby products could flow through to off-price retailers at significant discounts, she noted. Bed Bath & Beyond vendors will also likely redirect products to off-price retailers as a way to diversify the business without seeing a drop in sales, she added. "While one bankruptcy is not thesis-changing, competitors going out of business is one of the tenets of the off-price market share story that has been missing over the past few years. We expect off-price to be ready to take advantage of this and any others," Hutchinson wrote. Burlington and TJX are among the biggest beneficiaries, she said. Vacant Bed Bath & Beyond stores should be "great" for Burlington, which plans to grow its store count by 8% this year. Only 35% of Bed Bath & Beyond stores already have a Burlington location within a one-mile radius and 50% within two miles, Hutchinson pointed out. Burlington, which is trying to increase its penetration in home goods, could also see a 3% sales lift from taking 5% of Bed Bath & Beyond's sales, she said. Hutchinson has a buy rating on the stock and $250 price target, which implies nearly 34% upside from Monday's close. Meanwhile, TJX's HomeGoods could also gain from snatching up vacancies. Only 38% of Bed Bath & Beyond stores have a HomeGoods store within a one-mile radius and 52% within two miles, Hutchinson pointed out. TJX plans to grow its HomeGoods store count by 5% this year and its T.J. Maxx and Marshalls store count by 2%. The company should also snag deals on the beleaguered retailer's inventory. "We expect TJX will be a key beneficiary of the closeout product given it is the largest (making it the top choice for vendors) and the HomeGoods assortment is aligned with that of BBBY," Hutchinson said. She estimated TJX could see a 1% sales lift if it can capture 5% to 10% of Bed Bath & Beyond's sales. Hutchinson has a buy rating and $94 price target on the stock, which suggests 20% upside. — CNBC's Michael Bloom contributed reporting.