Bed Bath & Beyond Testing New Membership Program

While delving on a new membership program Bed Bath & Beyond Inc. BBBY is testing, UBS said risk-reward appears balanced for the company in the near term. The firm has a Neutral rating and a $45 price target on the shares of the company.

Member(Free)ship

Analyst Michael Lasser noted that the company is providing the members, who pay an annual subscription fee of $29, with a 20 percent off on all purchases at its in-store and online stores. The members also enjoy free standard shipping with no minimum when they shop online.

Membership Versus Coupon Redemption

The analyst believes there is logic for customers — who plan to spend $145 annually — joining the scheme. However, the free coupons and free shipping the company offers above a certain spending threshold might influence interest in the new membership program. According to the analyst, if the program is successful, the company may be forced to stop or limit the distributions of its free coupons. This will cause severe consequences, the analyst said.

Related Link: Why The Market Is Still Buying Bed Bath & Beyond

At Price Advantage With 20% Discount

UBS noted that the financial impact isn't significant in the near term, given the limited enrollment the company is allowing. The firm sees this as a response to membership programs at Amazon.com, Inc. AMZN, Wal-Mart Stores, Inc. WMT, Restoration Hardware Holdings Inc RH and others.

Comparing Bed Bath & Beyond and Amazon, UBS noted that the former's standard shipping takes three to seven days compared to two days for Amazon Prime. Even considering the 9.6 percent premium for Bed Bath & Beyond, the firm noted that the 20 percent discount offers it pricing advantage.

Sales At Expense of Margins

That said, UBS sees the program as margin squeezing for a company, which is already whining about coupon redemptions weighing on margins for the past 15 quarters. This is despite the incremental purchases and market share the company would stand to gain from the program, the firm noted.

At last check, the shares of the company were down 0.14 percent at $42.15.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!