Pier 1's Smith Aims to Stanch 'Bleeding'
Cecile Corral -- Gifts & Dec, April 23, 2007
For this new fiscal year, 2008, Pier 1 Imports has devised a six-pronged recovery strategy – a life preserver intended to keep the 1,196-unit retailer afloat after storming through "a truly horrible year," said Alex Smith, president and ceo, during the company's fourth-quarter and year-end earnings call.
"Pier 1's been bleeding — not because of the economy, not because of competition — but from self-inflicted wounds, specifically a failure to adapt and evolve its merchandise and a failure to become more streamlined and cost effective," said Smith, the former TJX exec who took the reins at Pier 1 on Feb. 19, upon the retirement of former chairman and ceo Marvin Girouard.
During the past eight weeks, Smith said it has become "crystal clear to me that we've been our own worst enemy," because the home furnishings retailer has not adapted to trends and customers' preferences to remain competitive and retain its clientele.
The struggling company reported a fiscal year 2007 net loss of $227.6 million — nearly six times the scope of its prior-year loss of $39.8 million — but this was actually better than Wall Street expectations and thus on the day of the news the retailer's share price inched up to its highest price since June 2006, on brisk trading volume.
Sales for the year fell 8.6% to $1.6 billion, while comps dropped 11.3%. Other metrics also plunged in the wrong direction. The company said, "Merchandise margins decreased 230 basis points from the prior year and gross profit, after store occupancy costs, declined 470 basis points vs. last year. Selling, general and administrative costs increased 10.3%."
In good news, year-end inventory was down 2.4% to $360.1 million, and the company had $167.2 million cash and no cash borrowings on its line of credit.
"Rather than solidifying our relationships with our most loyal customers and tempting them to spend more, we've alienated them" by dramatic shifts in the look of products and removing some of their favorite categories and skus in the assortments, Smith said. To boot, Pier 1's infrastructure has become cumbersome and costly, he added.
He is certain there is "nothing wrong with the Pier 1 business model. It simply needs to be executed with more precision and rigor … Pier 1 is as relevant today as it ever was, and can be returned to profitability and beyond."
This can be achieved, he said, through a six-priority turnaround plan that he described as "not surprising, revolutionary or particularly original," but rather comprised of "things any well-run retailer would do."
The first priority — also the quickest to get started — is to reduce costs by streamlining and simplifying the organization and reviewing in detail, "everything we spend money on," Smith said. Pier 1 has already streamlined part of its staff and has identified other cost savings opportunities at its stores and distribution centers.
Second is to make sure Pier 1's real estate strategy protects both the short- and long-term future of the company. Pier 1 will conduct reviews on store-by-store and market-by-market bases. During this new fiscal year, the plan is to open only five new Pier 1 units and close about 60.
The third priority is centered on merchandise improvements through a reorganization of the merchandising team's responsibilities. "Our buying function is significantly under-resourced and bogged down with processes not part of product development or procurement," Smith explained. "These tasks will be taken away, and the team will be strengthened."
The team, he added, will be focused on creating, developing and testing new products, will visit the competition, and "have time to think." Product-wise, the plan is to reroute the emphasis toward broader assortments with more variety in color options.
Fourth on the list is the combining of two separate functions — planning and allocation — into "one cohesive unit" that Smith said will oversee, among other things, inventory levels, markdowns, and purchase order management." Leading this effort is David Walker, who has been promoted to evp, planning and allocation. He was previously a member of Pier 1's executive management team.
The fifth priority is centered on supply chain management. "We're going to drive down costs, reduce lead times and increase return," Smith said.
Sixth and lastly, Pier 1's marketing plan will be overhauled. As the retailer reintroduces itself to customers and taps its broad customer base through various channels, it will spend less on marketing this year than last year. Pier 1's direct business is also being inspected, Smith said. With an admitted "very modest" e-commerce business and a "very, very modest catalog business," Pier 1 will spend time and effort reviewing these segments "carefully," Smith concluded.
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