Hammered by increased competition, Pier 1 lays out plan for recovery

DSN Retailing Today, July 11, 2005 by Debbie Howell

FORT WORTH, TEXAS -- Stronger competition, a failed advertising campaign and a pullback in consumer spending due to economic forces knocked Pier 1 Imports off-kilter last year, resulting in a trend of lower profits and declining comp-store sales that it is working to reverse.

But despite a dismal year financially--with net income down 49% and comps declining 5.8%--chairman and ceo Marvin Girouard's message to shareholders last month was one of cautious optimism, with a pledge of better times ahead.

"We are obviously disappointed in the company's sales and financial performance for 2005," Girouard said at Pier 1's annual meeting June 30. "Pier 1 Imports is facing many challenges, however we do believe we have a solid plan in place to take on those challenges."

Girouard blamed growing competition in home furnishings, such as Target's Global Bazaar program, ineffective advertising and restrained consumer spending as factors in comp declines. Commercials featuring "Queer Eye for the Straight Guy" designer Thom Filicia did not resonate with customers and were pulled in September, leaving Pier 1 with limited ad exposure last holiday season.

In addition, Girouard said Pier 1 has made changes to revive sales, such as reducing SKUs by 15% to 20% to make stores easier to shop, testing a catalog and expanding the breadth of advertising media, such as Internet shopping portals.

"Pier 1 built its reputation on being a good value. Our competition got way faster than we ever gave them credit for," Girouard said, explaining that the number of specialty stores selling home furnishings in the United States is about 5,000, a figure that doubled since 2001.

"Everybody saw after Sept. 11 that we had an incredible year and everybody came after us," the ceo told reporters after the meeting. "Our challenge is to become more unique."

With comps down 12% in the first quarter that ended in May and a single-digit decline projected for the second quarter, Girouard was optimistic that comps would turn positive by November with merchandise changes completed and the new ad campaign in full gear.

In light of a disappointing fiscal 2005, Pier 1 is scaling back expansion slightly, with plans to open a net of 55 new Pier 1 and two Pier 1 Kids stores. The retailer ended the year with 1,258 stores worldwide, of which 45 were former CargoKids stores renamed Pier 1 Kids.

This fall, Pier 1 will launch its first national catalog, an 80-page book with a circulation of 3 million. The catalog debut follows the successful test of a catalog in six markets last year.