Pier 1 turnaround starts with search for new ad agency

DSN Retailing Today, July 19, 2004 by Debbie Howell

FORT WORTH, TEXAS -- A revamped advertising strategy, sharper prices and a reduced merchandise mix are in the works by Pier 1 Imports as the home furnishings retailer responds to tougher competition and declining same-store sales.

For its fiscal year that ended Feb. 28, 2004, comps dropped 2.2% while net income also declined slightly. The trend has continued, with comps down 2.5% through July 3. At the retailer's shareholder meeting June 25, chairman and ceo Marvin Girouard attributed the sales softness to tougher price and assortment competition from discounters and general weakness in the home furnishings sector.

"Target and Wal-Mart and others have come into our sector, and we may have gotten a bit pricey," Girouard told shareholders at the meeting. "We need to fix it."

As a result, Girouard said the retailer would lower prices on select items to become more competitive, especially in smaller shelf goods such as candles or tabletop. Over the next few months, the company will also cut about 1,000 of its 4,500 SKUs to focus on its faster-moving and profitable items and reduce store clutter.

On another front, the company will drop advertising agency Campbell-Ewald when the contract expires in September due to poor response to recent commercials featuring new spokesman Thom Filicia, celebrity designer and a star in "Queer Eye for the Straight Guy." Girouard said Pier 1 is still firmly committed to Filicia as its spokesman, but that his expertise as a designer has not been communicated effectively in the commercials, which were revamped in July. Advertising expense will decline slightly this year, with more money devoted to spot TV rather than national network commercials, and circulars are shifting from a promotional sales strategy to emphasize Pier 1's unique offerings at a value.

"Our ads focused customers on promotional events, in some cases offering a discount of 20% to 40% off dinnerware. Customers waited for items to be on sale, which eroded not only margins but revenue," Girouard said in an earnings conference call.

Other initiatives under way include the debut this fall of Pier 1's first mail order catalog and the testing of a new name for its CargoKids format as Pier 1 Kids. Pier 1 now operates 47 CargoKids stores, with one store in Birmingham, Ala., the first to open under the new name Pier 1 Kids. Four other stores in the Washington, D.C., market will be converted to the Pier 1 name in the current quarter.

"We want to find out if these new stores will perform better and sales ramp quicker with the benefit and awareness of Pier 1's nationally recognized name," Girourard said.

Altogether, Girouard said these initiatives are intended to grow sales and reposition the core Pier 1 chain as a destination for unique home furnishings at a value.

"We have been looking at every part of the business," Girouard told shareholders at the annual meeting. "We are focused on the things needed to make Pier 1 a great company."

The ceo said he expected to see positive results from these programs in the second half of the year. Expansion plans for the year include opening 115 to 120 Pier 1 and 15 to 20 CargoKids stores. Worldwide, Pier 1 ended its fiscal year with 1,179 stores, of which 1,083 were in the U.S. and Canada. The company's long-term goal is to grow to 1,500 Pier 1 and 300 CargoKids stores in the U.S. and Canada.