The coronavirus further seeps into the retail industry as two of Digital Commerce 360’s Top 500 retailers argue over a planned acquisition that’s been impacted by the global pandemic.
Home and housewares retailer Bed Bath & Beyond Inc. has filed a lawsuit against 1-800-Flowers.com Inc. asking the court to deny the flower retailer’s attempt to use the coronavirus pandemic to delay the closing of the purchase of Bed Bath & Beyond’s gift retailer PersonalizationMall.com.
Requesting a delay
Bed Bath & Beyond is No. 68 in the 2019 Digital Commerce 360 Top 500. 1-800-Flowers.com is No. 79. Under the deal announced in February, 1-800-Flowers.com agreed to pay $252 million for PersonalizationMall.com. The deal was set to close on March 30.
On March 23, 1-800-Flowers.com requested to delay the closing until April 30 due to uncertainty surrounding COVID-19 without offering any assurances that the closing would happen on that date or on any date in the future, the lawsuit says.
“At the time the parties entered into the agreement in mid-February, the outbreak of COVID-19 in other countries was universally public knowledge, as was its potential to impact the economy,” the complaint reads.
PersonalizationMall.com, which is based in Illinois, has been closed since a March 21 state order that closed non-essential businesses. Because it is no longer operation, the retailer’s business will likely take a hit as a result of the pandemic. The retailer notifies shoppers on its home page that it is still taking orders, but they will not be fulfilled until May 1 at the earliest, which is when it expects non-essential businesses can reopen.
A spokesman for 1-800-Flowers.com says the company asked for a reasonable delay in the closing “due to the unprecedented circumstances created by the COVID-19 pandemic.”
“While we still desire to proceed with the transaction, we maintain that the conditions to closing the transaction have not been satisfied in light of the consequences of the COVID-19 pandemic, including the shutdown of the PersonalizationMall.com facilities until at least April 30, 2020,” the spokesman says. “We intend to vigorously defend ourselves against this lawsuit.”
Bed Bath & Beyond’s lawsuit claims that 1-800-Flowers.com was “attempting to use the unfortunate challenges presented by COVID-19 as a tactic to avoid its contractual obligations and unilaterally impose a 30-day extension to suit its interests, with no assurance whatsoever of a firm closing date.” That decision was a breach of contract of the purchase agreement, the complaint says.
The contract did state that a material adverse event (MAE) could allow for the contract to be modified. However, it specifically excluded potential adverse events “resulting from conditions affecting any of the industries or markets in which the company operates” or “any change resulting from changes in general business, financial, political, capital market or economic conditions (including any change resulting from any calamity, natural or man-made disaster or acts of God, hostilities, war or military or terrorist attack).”
“This is certainly a challenging time for all businesses, but 1-800-Flowers was a willing party to the agreement, which expressly allocated the risk of negative events, and it agreed to a customary MAE clause that has no application here,” the complaint reads. “1-800-Flowers, a sophisticated counterparty, should not be permitted to unilaterally delay its obligations, let alone for its now-stated purpose of determining later, whenever it chooses, whether it will seek to avoid them entirely.”
PersonalizationMall.com has had “steady growth” over the years and reached $150.0 million in online revenue last year, 1-800-Flowers.com said when it announced the acquisition. That would represent roughly 15% of 1-800-Flowers.com’s ecommerce sales of $998.36 million in its fiscal-year 2019 ended June 30. The acquisition would create a retailer that would have generated $1.148 billion in 2019, Digital Commerce 360 estimates.
“PersonalizationMall’s extensive product offering and industry-leading personalization capabilities will be an excellent addition to our growing family of popular gifting brands,” Chris McCann, CEO of 1-800-Flowers.com said in announcing the planned purchase.
PersonalizationMall.com offers customized products, including embroidery, digital printing, engraving and sandblasting.
1-800-Flowers.com has acquired 20 companies since 1998. Its latest acquisition was in August 2019 when it acquired online gourmet food retailer Shari’s Berries from FTD Companies Inc. for $20.5 million. The deal included customer data, phone numbers, 450 domain names, copyrights, trademarks and other intellectual property related to FTD’s gourmet food business.
Bed Bath & Beyond’s turnaround efforts
Bed Bath & Beyond bought PersonalizationMall.com in November 2016 for $190 million in cash. Shedding some of its retail assets, such as PersonalizationMall.com, is part of the company’s plan to fuel growth in the future.
The home furnishings retail chain has been struggling. The company posted declining holiday sales, including a 5.4% decline in comparable sales during December and January, driven primarily by store traffic declines, inventory management issues, increased promotional activity and markdowns, the company said on Feb. 11. Digital sales grew approximately 20% over the same period.
Activist investors in Bed Bath & Beyond in April 2019 published a report, which outlined the retail chain’s issues and solutions to fix some. One of the proposed solutions was to explore selling the company’s non-core retail businesses, such as Cost Plus World Market, Christmas Tree Shops and PersonalizationMall.com. A sale of these assets could generate about $1.4 billion, the investors said. The proposed changes were from the investors Legion Partners Asset Management, Macellum Capital Management and Ancora Advisors.
1-800-Flower.com’s acquisition of PersonalizationMall.com would mark the third retail acquisition in 2020 thus far. The others include: Procter & Gamble’s acquisition of digitally native shaving retailer Billie Inc. and Simon Property Group, Brookfield Properties and Authentic Brands Group acquisition of fast-fashion retail chain Forever 21.
Bed Bath & Beyond did not reply to a request for comment.Favorite