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Pier 1’s Smith aims to stanch ‘bleeding’

Fort Worth, Texas –For this new fiscal year, 2008, Pier 1 Imports has devised a six-pronged recovery strategy – a life preserver intended to keep afloat the 1,196-unit retailer after storming through “a truly horrible year,” said Alex Smith, president and ceo, during the company’s fourth-quarter and year-end earnings call this morning.

“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.

The struggling company reported a fiscal year 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 the 1,196-store specialty retailer’s share price inched up by midday today to its highest price since June 2006, on activity well above twice its average daily trading volume. The price began declining again by mid-afternoon.

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%.”

After eight weeks on the job, Smith said 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 six priorities:

  • Streamline the organization to cut costs;

  • Trim the real estate profile, closing a net 55 stores;

  • Add muscle to merchandising teams;

  • Meld planning and allocation functions;

  • Overhaul the supply chain;

  • Focus marketing and review direct-to-consumer.

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