Bed Bath & Beyond Is Circling the Drain Bed Bath & Beyond is on the verge of liquidation and it could have far-reaching implications for the retail industry, here are some potential winners.

Shares of Bed Bath & Beyond (NASDAQ: BBBY) are circling the drain and may fall through very soon. Attempts to stave off bankruptcy, including a search for potential buyers, are coming up short. The latest word on the street is that a Chapter 11 bankruptcy filing could come as soon as this week.

The company is reportedly prepping to close another 87 stores on top of the 150 it has already closed so it doesn't look like there is much hope.

What is Chapter 11? According to the US legal code, Chapter 11 is a reorganizational bankruptcy that protects the company from creditors while creating a new business plan. If successful, the new Bed Bath & Beyond will emerge as a stronger company with at least an avenue for profitability. If not, Bed Bath & Beyond could be facing a full liquidation of its assets and that could have far-reaching implications for the rest of the retail sector.

Who Wins When Bed Bath & Beyond Goes Out Of Business

The question of who will win when Bed Bath & Beyond goes out of business is tricky to answer because what business is left is highly questionable. The company has been facing increasing competition from bigger box retailers like Target (NYSE: TGT) and Walmart (NYSE: WMT) which is why it is going out of business. The good news is that annual revenue is still running in the range of $5 billion, so there is a pie to be divided.

At face value, Walmart and Target are the most likely recipients of new business, but there are others. In the case of Walmart, absorbing BBBYs entire business would be worth less than 1% of growth, so it is unlikely it will make any major moves. Target, on the other hand, would see closer to 5% growth if it absorbed the entire business so it is more likely to lean into home furnishings and kitchen supplies.

Wedbush analysts Seth Basham sees Wayfair (NYSE: W) as a potential recipient of BBBY business. In his view, the home furnishings industry will see about a 3.0% decline in 2023, but Wayfair will not. He predicts that Wayfair will grow in the no-growth environment as it gains market share, and this could be boosted by BBBY business.

He upgraded Wayfair stock to a buy because of it, but there is risk in this outlook. The risk is that Wayfair's offerings may be in a different league than Bed Bath & Beyond's core customer.

Off-Price Retail Will Be The Biggest Winners

The biggest winners from Bed Bath & Beyond's demise will be the off-price retailers, and the reason is threefold. First, these companies will be able to pick up massive amounts of inventory at rock-bottom prices, which is good inventory. Bed Bath & Beyond may not be a top-tier retailer anymore, but the brands under its roof are.

The second is that they will, in fact, get more traffic to their home goods sections, how much depends on location and effort but some for sure.

The third is labor. The influx of employees looking for jobs in retail will help those still in business flesh out their workforces and they need it badly. Names on this list include The TJX Companies (NYSE: TJX), Kohl's (NYSE: KSS), Ollie's Bargain Outlet (NASDAQ: OLLI) and Ross Stores (NYSE: ROST).

The Technical Outlook: Volatility Is On Deck

No matter what happens, volatility is assured for the BBBY market. Not only is institutional involvement still high at 64% but the short-selling is very, very high at a similar 65%. In this light, good news could spark a short-squeeze but bad news could send the stock to $0 under the pressure of short-selling and institutional exodus. This is not a stock for the faint of heart to own.