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Pier 1 Cites Causes For Rough Quarter

Pier 1 Imports, Inc. suffered a 39.5 percent drop in profits for the third quarter due to stiff competition from low-price megastores such as Target and Wal-Mart, where heavy discounting has taken place, and a lack of television advertising that has left its floors less trafficked.

Marvin Girouard, the company's chairman and CEO, said, “The third quarter was particularly difficult due to a challenging retail environment and company-specific issues from marketing and merchandising programs that are in transition during the last half of the fiscal year.

“Although weak store traffic and high merchandise discounting has negatively affected short-term profits this year, we are implementing longer-term plans, such as sku reductions, stronger visual merchandising and creative new marketing programs, to achieve improvements in sales and profitability. In the interim, we continue to carefully monitor inventories and control expenses.”

The company, said Girouard, has taken a hiatus from television while it revamps all its advertising with the help of outside firms. In October, Pier 1 announced it had named two agencies to helm a strategic and creative repositioning of its marketing initiatives. At that time, Deutsch Inc. and OMD Midwest began work on a new marketing campaign to be launched in March 2005.

Deutsch Inc. was tapped to address Pier 1's strategic repositioning in the retail market. The company will launch its new campaign with creative and media support, including television, print and online communications. OMD Midwest was named Pier 1's media agency, handling customer analysis, media planning and placement.

In terms of sku reductions, Girouard said that the company will be reducing its line of furniture offerings from five to four, for example. Overall, Pier 1 plans a 15 to 20 percent sku reduction, he said, to yield better merchandising and stronger item focus.

Until the company feels the benefits of its revamped advertising and merchandising program, Girouard said he expected “tough comps for the next three or four months” that should let up a few weeks after the March campaign. He said he expects to see improved numbers starting in April through July.

Girouard said Pier 1's goal is to have 70 percent inventory turn every year. He said freshness of merchandise is key because the company cannot compete with Target and Wal-Mart on price and is also faced with challenges from Restoration Hardware, Pottery Barn and Crate & Barrel on the high end.

Targeting the youngest customer segment, Girouard said that Pier One was confident that changing the name of its Cargokids locations would further generate traffic and sales.

To further generate traffic, Pier 1 is testing an 80-page catalog in two markets, including Las Vegas. Heartened by the early results, Girouard said the company will expand the test to six markets. The catalog is intended to help provide incremental sales while also bringing traffic into the stores. It won't carry exclusive product that is not found in stores.

During the third quarter, Pier 1 opened 34 stores and closed 11 in North America. For the first 9 months, the company opened 82 stores and closed 28, while for the next full fiscal year, Pier 1 plans to open 110 stores and close 40 for a net of 70 new stores. The company ended the third quarter with 1,137 North America stores, totaling 8.8 million retail square feet. Worldwide, Pier 1 ended the quarter with 1,242 stores, 44 Cargokids stores, 32 stores in the United Kingdom, 22 in Mexico and 7 in Puerto Rico.

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