Key Takeaways

• CNBC reports that the retailer anticipates profit cuts in 2022 due to “expected increases in inflationary pressures.” According to the article, Bath and Body Works expects to witness a $225 to $250 million decrease in profits, a whole $75 million more than it had anticipated.
• In a November 2021 interview with Senior Executive, David’s Bridal CEO Jim Marcum notes that one of the biggest challenges facing his organization is the lack of a proper work-life balance. This was especially evident when the COVID-19 pandemic necessitated working remotely and as Marcum describes it, “it was very easy to get pulled into that trap where suddenly it’s seven days a week and you cannot disconnect.”
• In November 2021, US News reported that CVS is planning to shut down hundreds of drugstores in the coming 3 years. CVS says that it intends to close 300 stores every year, totaling about 900 stores by the end of the stipulated time frame.

Introduction

Bath and Body Works

Inflation and Challenges from the COVID-19 Pandemic

• The Columbus Dispatch narrates that Bath and Body Works (BBW) were “not immune” to difficulties in their supply chains due to the disruption caused by the COVID-19 pandemic.
• A response from Bath and Body Works reads, "While we are better positioned than most retailers due to our primarily domestic supply chain, we are not immune to challenges. We expect that our assortments will be full and abundant, and we are confident that we will be able to meet customer demand, although we do have less in-season flexibility and agility to chase winners due to supply chain constraints. In addition to higher costs, we know these challenges will minimize our flexibility to chase winners and deliver increased sales versus our forecast, which in turn may inhibit our ability to accelerate sales growth year-over-year beyond what we are forecasting for the quarter."
• CNBC also reports that the retailer anticipates profit cuts in 2022 due to “expected increases in inflationary pressures.” According to the article, Bath and Body Works expects to witness a $225 to $250 million decrease in profits, a whole $75 million more than it had anticipated.
• Because of the difficulties brought on by the pandemic and the rising inflation, the brand notes that it has been subject to increasing costs of raw materials, wages, and transport costs.

How This Affects Bath and Body Works

• When the brand announced this outlook, its shares fell by more than 5% in after-hours trading, which CNBC reports followed an 8.6% decline experienced during day trading.
• The COVID-19 pandemic also led to the closure of physical shops, and even when they were opened again, Bath and Body Works had to institute safety measures for in-store purchases. Columbus Monthly reports that these “new arrangements” created new problems for the retailer whose main selling point was its fragrances. The article explains, “One of the biggest challenges posed by these new arrangements is this: How do customers smell a fragrance with a piece of fabric over their noses? “We’ve seen comments about that in social media,” an L Brands insider says with a chuckle. “They say, ‘I had to buy a candle to test the smell.’”

 

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Numerous Legal Battles

• Legal Newsline reports that in August 2021, Bath and Body Works was facing a class-suit lawsuit. Led by Carmen Perez and Andrea Brooks, the lawsuit sued the brand for “fraud, false advertising [claims that its products are “hydrating”], and other claims.”

• In August 2021, Top Class Actions announced that L Brands, Bath and Body Works, and Victoria’s Secret’s parent company, had reached a settlement agreement amounting to a whole $90 million “to end multiple lawsuits filed by investors.” This settlement is believed to settle two separate lawsuits filed against the company citing toxic workplaces that accused L Brands of curating a “culture of sexual harassment and misogyny that has plagued the company and Victoria’s Secret” for decades, and investors were demanding damages.”

• A March 2022 report by Bloomberg Law states that the company is being sued over violating credit card disclosure laws. The suit, brought forth by Nancy Blanco, claims that the brand broke federal law by “disclosing too many digits of customers’ credit cards”. Part of the article (requires registration for more details) reads, “Nancy Blanco sued Bath & Body Works for printing the first six and last four digits of customers’ credit and debit card numbers on its printed receipts, alleging that the retail store violated the Fair and Accurate Credit Transactions Act, which bans merchants from disclosing more than the last five digits.”
•  Case Text and Accessibility.com detail two more lawsuits that plagued the company in recent years.

How This Affects Bath and Body Works

• Supply Wisdom, a “third-party and location risk intelligence” service platform, asserts that lawsuits have “major drawbacks” to any business. According to the article, lawsuits are a massive drain on resources such as finances, time, and personnel. Lawsuits also lead to severed relationships between involved parties, who could include suppliers, employees, and even customers.
• The article adds, “Many customers are hesitant to do business with an organization that has been slapped with a lawsuit. As far as employment lawsuits go, it generally involves some kind of discrimination charge and most people do not want to be associated with that. Once the news spreads, the organization may lose a certain part of its existing customer base and new customers researching about the organization will hear about the lawsuit at some point.”
• As proved by the $90 million-settlement shelled out by L Brands, lawsuits can be a very expensive affair, Supply Wisdom posits, running affected brands into millions, “along with a tarnished image.”

False Rumors

• In April 2022, USA Today’s Fact Check reported that a misleading post that claimed that Bath and Body Works products were unsafe for use by pregnant women went viral, amassing close to 100,000 shares.
• Part of the viral post read, “Did you know that Bath & Body works products are actually not recommended to use while pregnant? Straight from their safety data sheet it reads "suspected of damaging fertility or the unborn child" and, "may cause damage to organs through prolonged or repeated exposure." Imagine how harmful they are to our pre-teen and teenage daughters? NO WONDER we have so many women struggling with infertility, hormone disruptions, migraines, thyroid complications… I could go on and on!!!”
• USA Today asserts that this post (and others like it) took the manufacturing safety sheet (used as proof of these claims) out of context. It records, “The post and numerous variations of the message circulating on Facebook all point to a "safety data sheet" from the Bath & Body Works website. But it only addresses one product — an air freshener — and it refers to potential hazards for employees in chemical manufacturing facilities, not consumers.”
• The Fact Check done by USA Today rated these rumors as false as the safety sheet in question was addressed to chemical manufacturing employees, not consumers of the finished products. In an email to USA Today, the company’s spokesperson Tammy Myers states, "Every Bath & Body Works product undergoes extensive review to ensure safety. As with any product a customer may use during pregnancy, we encourage them to consult a doctor if they have specific questions."

How This Affects Bath and Body Works

• BBC reports that false rumors, particularly negative sentiments shared on social media, can “destroy trust in your brand in a matter of minutes.”
• Pete Knott, a consultant at Lansons, a reputation management consultancy, adds, "Social media is the most immediate threat to your company's reputation. If not taken seriously it can and will directly impact your company financially and culturally."

David's Bridal

Burnout and Work-Life Imbalance for Employees

• In a November 2021 interview with Senior Executive, David’s Bridal CEO Jim Marcum (pictured below) notes that one of the biggest challenges facing his organization is the lack of a proper work-life balance. This was especially evident when the COVID-19 pandemic necessitated working remotely and as Marcum describes it, “it was very easy to get pulled into that trap where suddenly it’s seven days a week and you cannot disconnect.”

 

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• He narrates further, “We have a 95% female workforce — some of the brightest, most capable, competent people that I’ve ever met in my career — and they’re struggling. They’re trying to balance that personal life. They’re trying to balance children running through the house, while we’re on Zoom calls… When it was also home learning, homeschooling because everything was remote.”
• Employee reviews on the employment website Indeed support this, with multiple reviews mentioning work-life imbalance as a major con of working at David’s Bridal. One review, in part, reads, “I had a great team within my store. That being said I had zero work-life balance. Being salaried led to 60+ hr work weeks. Bonus structure is awful.”
• A longer review captured the following employee sentiment, “David’s is not as inclusive or supportive as they would have you believe. At least at my store, the top manager will pressure you into going to work sick and if you don’t you get written up. I didn’t receive any feedback or constructive criticism so it was just arbitrary. There’s little to no partnering with any management to improve or build on skills so it’s all on you to figure everything out yourself. They don’t care about work/ life balance and they don’t care about the mental health of their employees. I heard from someone that it took them 4 years to get a raise! The commission is not impressive and especially during slow times, they make the goal you have to make to earn any commission unreachable. I’m fine with a little friendly competition, but they will skip stylists for brides (has happened to me personally multiple times) and have 3-6 extra stylists who are just standing around doing nothing.”
• Indeed’s analysis of the reviews notes that one of David’s Bridal “areas of improvement” includes overall satisfaction.

How This Affects David’s Bridal

• CEO Jim Marcum highlights that combating burnout and helping its employees strike a work-life balance is a “top priority” for 2022 that he and the executive team is planning on addressing. He acknowledges that in the new post-pandemic hybrid world, it is important that David’s Bridal employees “build a balance.”
• In fact, it is such an important issue that the company has introduced policies such as increased flexibility between remote and in-office work, as well as wellness paid time off. “We also try to keep meetings to core business hours to give our employees more flexibility to manage their personal and professional schedules,” he concludes.
• Workable posits that burned-out employees can cause “significant organizational costs” such as high turnover, and inefficient and unengaged employees. In his interview with Senior Executive, Marcum believes good leadership entails empowering, supporting, and embracing one’s teams, which may explain the brand’s institution of measures against employee burnout.

Financial Woes

• Retail Dive reports that David’s Bridal that in 2018, the brand filed for Chapter 11 bankruptcy. While the article asserts that “signs of the retailer’s struggles had been slowly bubbling to the surface for years”, other factors such as increased competition, and the increase in demand for customized dresses (a phenomenon referred to as “casualization of the American wedding” by Retail Dive) have been cited as other reasons for the brand's woes.
• Another 2019 Retail Dive article noted that despite the brand’s emergence from bankruptcy, it was still not out of the woods, as S&P Global reportedly downgraded the brand’s credit rating to “junk territory.” This was attributed to the fact that David’s Bridal financial performance for the year was dismal. The press release from S&P Global termed the performance “significantly weaker than anticipated.”
• Moreover, analysts with the financial agency believed that David’s Bridal would be unable to repay its debt. S&P Global cited the decreasing customer traffic as the main cause of concern and an aspect that would “lead to added volatility.” Taking it further, the firm predicted tight liquidity and cash flow problems for the retailer in 2020.
• Yet another Retail Dive article (2021) details that in March 2020, the retailer closed all its stores because of the prevailing pandemic. “As the pandemic wore on, the retailer made deeper adjustments, furloughing employees and cutting management salary,” the article observes.
• The same article notes that in 2021, the retailer received a $70 million loan from the credit subsidiary of the Canada Pension Plan Investment Board. This, Retail Dive adds, is on top of a $125 million “revolving credit facility.” This could be construed to mean that the retailer’s financial struggles are ongoing.

How it Affects David’s Bridal

• In a 2019 interview with US Chamber, David’s Bridal then CMO, Liz Crystal, admitted that the retailer’s reluctance to meet the changing market demands like customized dresses, “unconventional wedding practices”, and falling marriage rates contributed to increased competition and led to the brand “stumbling.” She says, “We were not moving fast enough to compete in the marketplace.”
• Speaking on credit ratings, S&P Global states, “A Credit Rating is an informed opinion. Credit ratings are forward-looking opinions about an issuer’s relative creditworthiness. They provide a common and transparent global language for investors to form a view on and compare the relative likelihood of whether an issuer may repay its debts on time and in full.” Based on this information, it may be safely assumed that a downgraded credit rating may have negatively affected David’s Bridal financial outlook and financing prospects.

CVS

Closure of Drugstores

• In November 2021, US News reported that CVS is planning to shut down hundreds of drugstores in the coming 3 years. CVS says that it intends to close 300 stores every year, totaling about 900 stores by the end of the stipulated time frame.
• While CVS asserts that this move is simply its attempt to adjust to “population changes, customer buying patterns, and future health needs to ensure it has the right kinds of stores in the right locations,” Global Data’s MD, Neil Saunders insists that the brand had abandoned its drugstore business, “and pushed some of its locations into the downward spiral of irrelevance.”
• Saunders adds, “Too many stores are stuck in the past with bad lighting, depressing interiors, messy merchandising, and a weak assortment of products. They are not destinations or places where people go out of anything other than necessity.”
• CNN Business also believes that CVS is closing down its stores because it has too many, to begin with. The article reads, “CVS closed 244 stores between 2018 and 2020, yet it still has more than 9,900 stores. That's more than Walmart (WMT), Target (TGT) Kroger (KR), and Costco (COST) — combined. Its latest closings will "reduce store density in certain locations," CVS said Thursday, which translates into the fact that CVS has too many stores too close to each other in some places.”

How This Affects CVS

• CNN Business proffers that the over 9,900 stores must accrue very high maintenance costs. The article notes that part of maintenance meant ensuring that the stores followed the safety precautions necessitated by the pandemic like the use of Plexiglas, floor decals, and masks. Further, the company had announced that it was planning to increase its minimum wage from $11 to $15. George Hill, an analyst with Deutsche Bank remarks, “There are cost pressures in all directions.”

Prescription Errors

• In July 2020, New York Times asserts that CVS was fined by Oklahoma state regulators for improper conditions found in 4 of its drugstores.
• Some reasons given for the fines include poor staffing and errors in prescription filling. New York Times gives an example, “One of those errors occurred last year when a developmentally disabled teenager received one-fourth of his prescribed dose of anticonvulsant medication from a CVS in Owasso, a suburb north of Tulsa, according to a complaint filed by the board. The boy took the incorrect dosage for 18 days, during which his seizures became uncontrollable, causing him to fall and hit his head.”

How This Affects CVS

• The Oklahoma state regulators ordered the giant retailer to pay a fine of $125,000. Aron Brown received a settlement of $75,000. His father opines, "The convulsions were nonstop and violent. You have no idea what kind of shame we feel about this — that we couldn’t figure out what was going on."
• CVS was also subjected to a review by the Oklahoma State Board as a result of numerous reports of overwhelmed staff and errors in prescription fillings. The outcome of the review was that Owasso Pharmacy, the pharmacy involved in the incorrect prescription filling for Aron Brown, would be under probation for another 2 years. The numerous complaints could be construed as evidence of unsatisfied customers.

Research Strategy