By Heather Landy, Fort Worth Star-Telegram, Texas
Apr. 13–For three years, Pier 1 Imports executives have struggled to make sense of their company’s troubles. They blamed their slowdown on competition from Target Corp. They blamed the war in Iraq. And they blamed the end of Friends and the subsequent dismantling of NBC’s “Must See TV” Thursday night lineup, once a prime advertising slot for the retail chain.
It appears that Target, the war and Jennifer Aniston are off the hook, based on the assessment of Pier 1’s new chief executive, who says that the most successful retailers constantly evolve their merchandise style and evaluate costs.
“After eight weeks at Pier 1, it is crystal clear to me that we have been our own worst enemy because we haven’t done those things,” said Alex Smith, who joined Pier 1 in February after 10 years with TJX Cos., the parent company of off-price retailer T.J. Maxx.
In his first public comments since taking the helm at Pier 1, Smith told analysts on a conference call Thursday that the home-furnishings chain neglected the need for gradual tweaks that could have kept its merchandise current, and then went too far when it abruptly narrowed its selection and trotted out modern designs that alienated customers.
Smith outlined his plans for revamping the company, its stores and the merchandise mix as the company reported a fiscal fourth-quarter loss of $58.7 million, or 67 cents a share, compared with a loss of $9.98 million, or 11 cents, a year earlier. Sales in the three months ended March 3 fell 6.4 percent to $473.7 million, including an 11 percent drop in revenue at stores open at least a year. Inventory write-downs, mainly for the Modern Craftsman collection, accounted for $32.5 million of the quarterly loss.
Officials declined to give financial forecasts for the current quarter.
Part of Smith’s plan to return Pier 1 to profitability after two years of losses is to bring in a broader assortment of goods in a wider variety of colors and styles.
“The historical strength of Pier 1 was really catering to a very broad group of customers, and that’s exactly what we’re going to get back to,” Smith said. “Pier 1 can’t survive as a tightly focused niche retailer. It just doesn’t work.”
His other strategies include reducing costs, beefing up the merchandise-buying team, squeezing more efficiency out of the supply chain that moves goods from vendor factories to Pier 1 stores and developing a more cost-effective marketing plan.
“They’re not revolutionary or particularly original,” Smith said of his ideas. “They are just the things any well-run retailer would do.”
Smith declined to give a timetable for introducing new merchandise, which can take several months to source, produce and transport from overseas factories. But he said he has confidence in the team he inherited from former Chief Executive Marvin Girouard, saying it has the “ability and the will to return our brand to its former strength.”
Management experts said Wall Street is likely to keep a short leash on Smith and his senior executive team, which was kept intact while 100 other headquarters workers and 75 employees in field offices across the country lost their jobs two weeks ago.
“There’s been very little change at Pier 1, outside the CEO, for a company that’s had a lot of problems,” said Richard Jacovitz, senior vice president at Liberum Research, which tracks executive turnover. “I don’t think he [Smith] has a long honeymoon to say the least. He’s got to show that he’s going to be changing direction.”
Smith already has put his stamp on the Fort Worth-based company.
In addition to slashing $17 million from the payroll with the recent job cuts, he created a planning and allocation department to oversee inventory and price markdowns — tasks that used to be handled by the stretched-too-thin buying team, he said — and he signed off on plans to close 60 stores this fiscal year.
Pier 1 Kids stores will account for 10 closings. The children’s furniture chain had been growing since Pier 1’s 2001 acquisition of Cargo Furniture, which eventually became Pier 1 Kids. But Chief Financial Officer Cary Turner said the company no longer sees the chain as viable as a stand-alone operation and may look at melding the concept into Pier 1 stores.
Store closings was one of the topics that a new shareholder with a 5.5 percent stake in Pier 1 addressed this week in a letter to the board.
New York-based hedge fund Elliott Associates suggested that the company shut 250 to 300 of its 1,200 stores, in addition to slashing overhead. The fund also suggested bringing in independent directors to help lead a turnaround.
Smith noted that at the end of fiscal 2008, the company will have closed about 160 stores over three years. And the company announced that it will expand its board this year by one seat to eight. Cece Smith, who has served as a director for retailers including Michaels Stores, and Robert Holland III, former U.S. executive director of the World Bank, were nominated to Pier 1’s board. Director James Hoak Jr. will not stand for re-election at the shareholders meeting in June.
The company also announced that it will no longer report sales on a monthly basis, saying that quarterly disclosures would be “beneficial to shareholders during this transition period” because they would be able to draw “more meaningful” comparisons in the context of quarterly expenses, merchandise margins and other figures.
Pier 1 shares (ticker: PIR) fell 24 cents in Thursday’s session, closing at $7.61.
Putting an end to huge shifts in style, like the sudden swing to a modern look, should help Pier 1 stabilize itself and reconnect with customers, said Carol Spieckerman, a principal with management consulting and retail strategy firm NewMarketBuilders in Bentonville, Ark.
“The worst could be over if they don’t make it worse,” Spieckerman said. “They can’t be all over the place.”
PIER 1 IMPORTS FINANCIALS
Fourth-quarter sales: $473.7 million, down 6.4 percent
Fourth-quarter loss: $58.7 million; 67 cents a share
Full-year sales: $1.6 billion, down 8.6 percent
Full-year loss: $227.6 million; $2.60 a share
Alex Smith’s comments to analysts:
On Pier 1’s tough time: “To explain the performance of Pier 1 as something to do with competitors and outside forces is wrong.”
The competition: “Even if we did 50 percent [same-store sales comparisons] for the next five years, our market share would still be relatively modest, and so there is room for a very, very successful Pier 1 in the marketplace and a whole bunch of very, very successful competitors.”
Pier 1’s merchandise: “Those assortments did get somewhat stuck in a time warp. What the business did instead of kind of evolving them and moving them on, they changed them very dramatically.”
The need for a beefed-up buying team: “One of the strengths of Pier 1, and really a good competitive advantage for us, is we still have a buying organization where the buyers travel extensively. That needs a lot of feet on the ground, and I just think we’re under-resourced.”
His role in improving merchandise: “I intend to work very closely with the team, but I’m not going to pick the goods personally and write the purchase orders. But certainly in terms of direction and guidance, I will be there.”
Heather Landy, 817-390-7725 [email protected]
Copyright (c) 2007, Fort Worth Star-Telegram, Texas
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