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Bed Bath & Beyond Inc. is attempting to scale back those big paper coupons that are stuffed in mailboxes across the country.

Instead, the home goods retailer is testing a membership model that for $29 a year offers a 20% discount on all purchases and free shipping. The paid subscription aims to generate other streams of revenue, increase customer loyalty, improve margins and better compete with Amazon.com Inc.'s Prime membership program.

"The coupon is clearly and has been strongly associated with us," Chief Executive Steven Temares said on the retailer's recent earnings call. "But really, we need to be working and we are working on becoming a lot more intelligent about our marketing and making it much more personalized."

The invitation-only program was launched less than two weeks after Bed Bath & Beyond reported a 17% drop in profit and slowing sales growth in its most recent quarter. In the quarter ended in August, the company reported yet another increase in coupon usage with a slight decrease in average coupon amount.

Coupon redemptions have squeezed the retailer's margins for the past 15 quarters, according to UBS analysts. The company's shares have fallen about 25% over the past year.

It is the latest attempt by a retailer to move away from the promotions and discounts that proliferated after the recession and onto a paid-membership program. Restoration Hardware Holdings Inc., Lands' End Inc. and Barnes and Noble Inc. have also introduced similar offers. Wal-Mart Stores Inc. earlier this year began offering free two-day shipping to members of its $49-a-year ShippingPass program.

Tom Caporaso, who runs marketing technology company Clarus Commerce LLC, said Bed Bath & Beyond's new program is seeking to change shopper's reliance on its coupons. "This is a way to wean themselves away from offering that to all customers, and see if certain customers will raise their hand to pay a fee to get access to these benefits," Mr. Caporaso said.

Bed Bath & Beyond's program, called Beyond+, is still in the testing phase. It started last week and has closed for new members. The company hasn't said how many customers it admitted and didn't respond to requests for comment.

Analysts from Wedbush Securities Inc. said the program "appears attractive for frequent shoppers" and is the best attempt to date to stem lost market share. After the 20% discount, Wedbush said, items from Bed Bath & Beyond would be on average 13% cheaper than Amazon.

But the program falls short of what members get from Amazon's Prime. Its shipping-free window is between three to seven days while Prime's is a two-day offer. And Prime also offers a range of other services, such as video streaming and photo storage, and a wider array of inventory. Beyond+ perks don't extend to purchases made at the retailer's other nameplates, such as Buy Buy Baby Inc. and Harmon Stores Inc.

The program benefits customers who spend $145 or more annually at the retailer, according to UBS analysts. On average Bed Bath & Beyond shoppers visit and buy from its stores 2.84 times a year and spend an average of $120 per trip, UBS said.

Moving customers away from coupons won't be easy. The retailer has developed a reputation for accepting multiple coupons per order, and honoring them beyond their expiration dates.

One shopper, Danelle Staebler, learned about the membership program from a friend who posted about it on Facebook. She then commented, "What am I going to do with the 30,000 coupons I've been hoarding?"

Ms. Staebler, 38, said she visits the store about four times a year, but always armed with the coupons that she has been collecting for over a decade. Last weekend, she found a stack of coupons from 2004 that she promptly used to buy hooks and a liner for her shower curtain, and laundry detergent for her new home in Fargo, N.D.

Ms. Staebler said she likely wouldn't join the membership program if the retailer expands it nationally because "I don't buy a ton of stuff there and when I do I have my coupons."

(END) Dow Jones Newswires

October 06, 2016 07:55 ET (11:55 GMT)

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