Pier 1 Imports, Inc.

views updated May 21 2018

Pier 1 Imports, Inc.

301 Commerce Street
Suite 600
Fort Worth, Texas 76102
U.S.A.
Telephone: (817) 252-8000
Toll Free: (888) 807-4371
Fax: (817) 878-7883
Web site: http://www.pierl.com

Public Company
Founded: 1962 as Cost Plus
Employees: 12,600
Sales: $1.14 billion (1999)
Stock Exchanges: New York
Ticker Symbol: PIR
NAIC: 442110 Furniture Stores; 442299 All Other Home Furnishings Stores; 453220 Gift, Novelty, and Souvenir Stores

Pier 1 Imports, Inc. is a leading specialty retailer, operating more than 800 casual home furnishing stores in 48 U.S. states, two Canadian provinces, and in Mexico, Puerto Rico, the United Kingdom, and Japan. The vast majority operate under the Pier 1 Imports name, while the U.K. units are known as “The Pier” and the operations in Mexico and Puerto Rico consist of “store within a store” outlets in Sears stores. The U.S. and Canadian stores are typically freestanding units of about 7,500 square feet located near major shopping centers or malls. They offer a wide selection of merchandise, including more than 5,000 items imported from more than 60 countries worldwide (the bulk coming from Asia), with the principal categories consisting of furniture, decorative accessories, dining and kitchen goods, bath and bedding accessories, and seasonal items. Sales through the company’s proprietary credit card account for more than 28 percent of overall sales.

1960s: The Early Years

Charles Tandy and Luther Henderson opened the precursor to Pier 1 shops in 1962 under the name Cost Plus. Henderson was serving as treasurer for Tandy’s burgeoning Tandy Corporation, which became best known for its Radio Shack chain. Pier 1 was inspired by the owner of a rattan furniture importer and wholesaler in San Mateo, California, who was having credit problems. To help liquidate costly inventory, the shop owner opened a liquidation outlet in 1958 called Cost Plus. Impressed by the shop’s success, Tandy offered the owner of Cost Plus a loan to start a retail Cost Plus outlet. At the same time, Tandy secured the rights to open and operate additional stores under the Cost Plus name.

The concept behind Tandy’s Cost Plus chain plan was relatively simple: a strong U.S. dollar would allow him to import items, including rattan furniture, brass candlesticks, specialty textiles, and other items, at rock bottom prices from countries such as Mexico, India, and Thailand. Even with large markups the goods would seem relatively cheap in the United States. Furthermore, items that did not sell well could be easily liquidated by cutting their price to near cost. Although most of the merchandise was second-rate in comparison to U.S. or European-made goods, it was popular with the large baby-boom generation, most of whom were first-time buyers of furnishings.

Tandy opened 16 Cost Plus retail outlets between 1962 and 1965. By 1966, however, Tandy’s growing Radio Shack enterprise began to take much of his attention away from his Cost Plus venture. On February 10, 1966, a group of 30 investors led by Henderson bought Tandy’s Cost Plus operation. They changed the name to Pier 1 Imports to reflect the store’s import emphasis and embarked on a mission to expand the concept nationally. The original Cost Plus outlet remained under separate ownership and eventually grew into the nationwide Cost Plus chain of the early 21st century, one of Pier 1’s competitors.

By 1967, Pier 1’s sales had already reached $4.5 million annually, and growth accelerated throughout the remainder of the decade. By 1969, the chain had grown to 42 stores and demand for Pier 1’s goods was increasing. Pier 1 went public in 1970 to raise money for continued expansion. The company’s stock was initially listed on the American Stock Exchange, before moving to the New York Stock Exchange two years later. Pier 1 had multiplied its chain to 123 stores, which represented sales growth of more than 100 percent since 1968. Among Pier 1’s shops were stores that had been opened in Australia and England in 1971. During the following two years the chain also branched out into France, West Germany, the Netherlands, and Belgium.

Pier 1 prospered during the late 1960s and early 1970s by focusing on the baby boom generation, members of whom were looking for interesting, exotic goods such as love beads, incense, leather sandals, and serapes. “You could characterize a lot of our customers as flower children,” recounted Pier 1 chief executive officer Clark Johnson in the Dallas-Fort Worth Business Journal. “Our stores had the look of an old grocery store… and, at that time, the appeal was heavily toward cost.” As the “flower children” rushed to Pier 1 to decorate their dormitory rooms, bedrooms, and apartments, company sales rose to $68 million and earnings to $3.8 million by 1973.

Mid-1970s to Early 1980s: Reorganizing and Restructuring

After an explosive decade of growth, Pier 1’s fortunes began to change in the mid-1970s. Importantly, global inflation and exchange rate fluctuations exposed Pier 1’s unique vulnerability to worldwide financial changes. Foreign goods became much more expensive, thus diminishing Pier 1’s important cost advantage. Furthermore, other retail chains and department stores began to vie for some of Pier 1’s market share by offering many of the same imported goods. To make matters worse, the core group of customers upon which Pier 1 had focused its energy was changing; baby boomers were becoming more sophisticated by the mid- and late 1970s and were increasingly interested in more mainstream goods. According to some critics, Pier 1 lost touch with its patrons and failed to change its inventory to meet market demands.

In an attempt to buoy sales and profits, Pier 1 mounted several reorganization campaigns and new marketing strategies during the mid-1970s. The company even tested different types of stores, including specialty retail outlets, art supply centers, rug stores, and fabric shops. Pier 1 also diversified into several wholesale operations such as Singapore Candle Company, Southwestern Textile Company, Rug Corporation of America, and Pasha Pillows. Many of its retail and wholesale experiments languished, and Pier 1 eventually jettisoned most of them.

Although the company failed to sustain the rampant growth it had achieved during its first ten years, Pier 1’s balance sheet had improved slightly by the late 1970s. By 1979, the chain included approximately 300 stores worldwide, while sales and profits had stabilized. Pier 1 merged with Cousins Mortgage and Equity Investments (CMEI) in 1979 in an effort to boost its capital. Then, in 1980, the board of directors brought in Robert Camp to help improve the company’s performance.

Camp had successfully operated his own chain of Pier 1 stores in Canada and had a knack for retailing. Camp forced Pier 1 to reevaluate its buying operations and store location strategies. He also focused on improving visual merchandising techniques. During 1981 and 1982, Pier 1 consolidated its retail import operations, closed marginal stores, opened larger outlets in more profitable locations, and shifted from novelty items to higher quality goods. Investors were impressed by Camp’s initiatives. Within two years, sales increased 41 percent to $165 million and operating income jumped 66 percent, to $6 million. Pier 1’s stock price quickly rose from about $1 in 1980 to more than $7 by 1982.

Mid-to-Late 1980s: Refocus on the Customer

Just as Pier 1 began to build momentum under the direction of Camp, control of the company changed hands. Under the leadership of Charles (Red) Scott, La Jolla, California-based Intermark, Inc., a billion-dollar holding company with a reputation for turning ailing companies around, bought a majority interest in Pier 1. Camp eventually left, and Scott hired Clark Johnson to run Pier 1 in 1985. Johnson, who was known as an aggressive and sociable businessman, had a varied background that included experience in both the furniture and sporting goods industries. He had also managed lumberyards and had partnered with Jack Nicklaus to run MacGregor Golf Co. As president of Wickes Furniture he had engineered the turnaround of that company during the mid-1970s. Likewise, he boosted sales at MacGregor from $17 million to $50 million in just five years.

Like Camp, Johnson initiated numerous changes within the Pier 1 organization. He immediately sold Pier 1’s two major subsidiaries, Sunbelt Nursery Group Inc. and Ridgewood Properties Inc. He also jettisoned the mail-order business, which lost more than $1 million in 1985 alone. In addition, Johnson developed plans to modernize Pier 1’s computer information systems, upgrade advertising and marketing programs, and consolidate its North American management offices. Furthermore, between 1985 and 1989 he closed more than 60 marginal stores and refurbished most of the company’s existing outlets at an average cost of $190,000 each. More aggressive managers were brought in and given the freedom to make critical decisions.

Perhaps Johnson’s most notable strategic contribution during the mid-1980s was improving Pier 1’s attentiveness to its customer base. “It was clear that there was a huge audience out there which had once felt a tremendous allegiance to Pier 1,” recalled Johnson in Adweek’s Marketing Week, adding “I believed we could rekindle that allegiance if we showed them that we were in tune with their new values.” Johnson retained New York PR agency Makovsky & Company to conduct what it termed “the most comprehensive study of the American home ever undertaken.”

Company Perspectives:

Pier 1 Imports offers distinct, casual home furnishings at a good value. Our ever-changing collections are presented in a sensory environment that encourages customers to have fun shopping for their homes. Pier 1 is a socially conscious company that conducts business with personal and professional integrity. We employ committed, caring associates whose first priority is responding to the needs of our customers.

The study was designed with two goals in mind: (1) to determine whether or not Pier 1 was on track with the values it was emphasizing in its stores, and (2) to generate publicity as the sponsor of the study. Among other statistics, survey findings indicated that 92 percent of college-educated Americans were satisfied with their homes; 86 percent decorated their homes themselves; 57 percent believed that their homes were nicer than what they had grown up in; and an overwhelming majority described their home interior as casual. As hoped, the media reported the survey’s findings and brandished Pier 1’s name on the cover of major national newspapers and on television screens.

Confident of his strategy to win back Pier 1’s customer base and reposition the company, Johnson embarked on an aggressive program of growth in 1986. He set a goal of doubling the total number of Pier 1 outlets by 1990 and increasing the average floor space and annual sales of the stores. Pier 1 achieved its goal one year early. By 1989 the company had doubled its chain to include more than 550 outlets worldwide. In addition, profit margins increased and the average ticket value of store items rose to $25 (from just $5 in the early 1980s), aided by the 1988 introduction of the Pier 1 Preferred Customer Card, the chain’s proprietary credit card. As a result, sales leapt from $173 million in 1985 to $517 million by 1990. More importantly, profits soared from $60 million to $210 million during the same time period.

Encouraged by Pier 1’s success, Johnson boldly proposed expansion plans for the next decade. “The best way to predict the future is to create it,” Johnson stated in Adweek’s Marketing Week. He continued: “Pier 1 Imports has a vision of the kind of company it would like to become. By the year 2000 Pier 1 will operate more than 1,000 stores, producing more than $1.25 billion in sales and serving more than 10 million customers.”

Early 1990s: Stumbling Through the Recession

Despite these grand plans, Johnson was forced to slow Pier 1’s pace in 1990 after seven years of expansion. Economic sluggishness in the United States forced the slowdown. Although sales swelled to $562 million in 1991, net income shrunk as retail markets became increasingly competitive. Pier 1 repurchased Sunbelt Nursery Group late in 1990 in an effort to diversify and reduce its total dependence on retail markets. By early 1991, its chain included more than 650 stores, but Johnson planned to open only a few new stores during 1991 and to close several as part of a company consolidation plan. Pier 1 trimmed its home office staff, reorganized management, and brought its advertising activities in-house to save money. Johnson explained that the company was shifting its focus from growth to more acute management of its existing operations.

Although it stumbled in the early 1990s, Pier 1 was the bright spot on its parent’s list of company holdings. Intermark’s other major holdings consisted of many different kinds of companies, including Dynamark (a manufacturer of mag wheels), Liquor Barns (liquor stores), and Western Sizzlin (restaurants). Intermark’s stock price plunged during 1991 from $12 to $1.37 per share as the company posted a loss of $67 million (on the heels of a $10 million loss in 1990). To avert disaster, CEO Scott was forced to sell Pier 1, making Pier 1 a public company. Scott’s responsibilities at Intermark were reduced as the company slid into debt-induced jeopardy. Intermark would declare bankruptcy in 1992, emerging in June 1993 as Triton Group Inc.

Economic sluggishness continued to hurt Pier 1 during 1992 and 1993. Although its growth in comparison to the late 1980s was meager, the company managed to sustain moderate revenue gains and to stabilize profits. Net income surged to about $25 million annually during 1992 and 1993 as sales climbed to $629 million. Unfortunately, Pier 1’s long-term debt obligations also increased, from about $92 million in 1990 to $147 million by 1993. As part of a reorganization strategy, Pier 1 repositioned itself as “The Place to Discover” in 1992. It also decentralized operations to better serve its 600 stores. In an effort to generate capital, Pier 1 again sold its interests in Sunbelt Nursery.

Although Johnson’s efforts at Pier 1 were generally lauded by industry observers, some critics characterized his management style as “glad handling,” while citing his salary as inflated. Moreover, some criticized Pier 1’s financial condition. Of concern to analysts was Pier 1’s excessive debt, which had multiplied fivefold since Johnson’s arrival. In addition, Pier 1’s operating costs had increased, significantly reducing the company’s overall profitability compared to leaner retailers competing in the same market. Other criticisms addressed Pier 1’s selection of inventory and marketing strategy.

Key Dates:

1962:: Charles Tandy and Luther Henderson open their first Cost Plus store.
1966:: A group of investors led by Henderson buys Tandy’s Cost Plus operation and changes the name to Pier 1 Imports.
1970:: Company goes public.
1971:: International expansion begins with the opening of stores in Australia and England.
1979:: Chain includes approximately 300 stores worldwide.
1985:: Intermark purchases a majority interest in Pier 1; new efforts are made to win back customer base and reposition the company.
1989:: Number of stores exceeds 550.
1991:: Intermark sells its stake in Pier 1, returning Pier 1 to true public ownership.
1993:: Pier 1 “stores within a store” are launched in Mexico; partnership is forged to operate “The Pier” chain in England.
1997:: Company enters into a joint venture to open stores in Japan.
1999:: For the fiscal year ending in February, net sales exceed $1 billion for the first time.

Buffeting criticism, however, was a history of strong growth and relatively steady earnings. In addition, Pier 1 had boosted its image through charitable donations, which included a $785,000 gift to UNICEF in 1992. Pier 1 had started donating to UNICEF after Johnson’s arrival in 1982 and had supplied over $3.3 million to the organization between 1985 and 1992 from the sale of greeting cards in Pier 1 outlets. The extremely successful fundraiser was established by Marvin J. Girouard (pronounced “Gerard”), a Pier 1 veteran who was named president and chief operating officer of the company in 1988.

Mid-1990s and Beyond

Pier 1’s sales surged to $685 million in 1994, an increase of about eight percent over the previous year, which helped allay doubts about the company’s overall approach. Pier 1 opened 48 new stores and closed 17 during 1994, bringing the total size of its international chain to 636. Pier 1’s reach extended into most of the United States, with an emphasis on Florida, California, New York, Texas, and Ohio. It operated 30 stores in Canada and was active in several joint ventures, particularly in Mexico and the United Kingdom.

Pier 1 continued to emphasize imports from low-cost producers in the mid-1990s. China, its largest supplier, contributed about one-third of its inventory in the early 1990s. Other major suppliers included India, Indonesia, Thailand, and the Philippines. Sales of furniture and kitchen goods each represented about one-quarter of the company’s revenues in 1994. Textiles and jewelry each comprised about 13 percent of sales, and the remainder was attributable to miscellaneous gifts and accessories.

As revenues continued to increase in early 1995, Johnson reaffirmed his intent to pursue the ambitious growth plans he had proffered in 1989. He still wanted to build the Pier 1 chain to more than 1,000 stores by the turn of the century and to push sales past the $1 billion mark. Toward that end, Pier 1 was pursuing growth through a multifaceted strategy in the mid-1990s that highlighted international expansion. Johnson hoped to open 100 foreign stores by the end of the decade by buying into existing retail chains or setting up joint ventures. Pier 1 was already operating two Pier 1 “stores within a store” in Mexico through a joint venture with Sears de Mexico S.A. which was launched in 1993. In addition, the company entered into a partnership with a chain of ten retail import stores in the United Kingdom called “The Pier,” a venture that began in 1993.

Pier 1 was also striving to boost sales through its credit card, which was reportedly used in about 14 percent of store purchases in 1994 (totaling $100 million), as well as through the creation of smaller, more conveniently located stores. To that end, Pier 1 was bucking the retail trend toward giant warehouse stores and was initiating a program of building multistore locations that provided a better shopping experience (better parking and customer service, and a more pleasant atmosphere). In addition, the company was experimenting with new advertising media, including television, in an effort to lure younger buyers. Pier 1 launched its first national television ads in July 1995.

Sales continued to increase in 1995 and 1996, reaching $810.7 million in the latter year. Aiding the increase was further tinkering with the product mix, most notably a cutting back on space devoted to the sluggish apparel category. By 1996 apparel accounted for only six percent of overall sales, and the following year the category was discontinued altogether. Management also continued to push the chain’s remaining product offerings upmarket, as the household income of its average customer reached about $60,000 by 1996, compared to $26,600 a decade earlier. As an example of the upscaling of Pier 1, Johnson told HFN in 1996 that the chain’s most expensive basket sold for $129, compared to $4.95 in 1985. The average customer ticket total in mid-1996 was $44, a huge increase over the 1980 figure of $5.25.

Unfortunately, the earnings picture was not nearly as bright as that of revenues. To wind down its investment in Sunbelt Nursery, Pier 1 was forced to take writeoffs totaling $37.3 million, including a $14 million charge during the 1996 fiscal year. That same year the company suffered a large trading loss. Capital Insight, a firm Pier 1 had hired to invest its excess cash and short-term funds, lost $19.3 million making risky futures investments that went sour. Following 1995 net income of just $22.1 million, the financial setbacks led to a decline to $10 million in net income the following year. The trading loss also led to the firing of Pier 1’s longtime CFO, Robert G. Herndon, who was responsible for overseeing the investments. The company also pursued legal action to attempt to recover its loss, and subsequently received an $11 million settlement during the 1998 fiscal year.

International expansion continued in the late 1990s, although the company’s Mexican operations suffered from the devaluation of the peso. During fiscal 1996 Pier 1 entered into an agreement with Sears Roebuck de Puerto Rico, Inc. to develop Pier 1 “stores within a store” in Sears outlets located in Puerto Rico, an arrangement similar to the one in Mexico. By early 1999 seven Sears Puerto Rico stores were offering Pier 1 merchandise. In 1997 Pier 1 entered into a joint venture with Akatsuki Printing Co., Ltd. and Skylark Group to open stores in Japan. By early 1999 there were 18 Pier 1 stores in that country. Also during this time, the company purchased an Omaha, Nebraska-based national bank, which was soon renamed Pier 1 National Bank and which held the credit card accounts for the company’s proprietary card. The Pier 1 credit card was responsible for 28 percent of sales by the end of the decade.

Pier 1’s earnings decline appeared to be only temporary, as the company rebounded by fiscal 1998 to post profits of $78 million on record sales of $1.08 billion. This also marked the first time sales had exceeded the $1 billion mark. In June 1998 Girouard was appointed CEO, taking over from the retiring Johnson. Girouard added the chairmanship as well in February of the following year. Although sales grew again in 1999, reaching $1.14 billion, this represented an increase of only 5.6 percent over the previous year, compared to the 13 to 17 percent increases of the previous three years.

With markets for new Pier 1 stores in the United States at a minimum, and with competition increasing from fast-growing discounters such as Cost Plus and such upscale housewares chains as Pottery Barn and Crate and Barrel, Pier 1 Imports appeared to be hitting a plateau, prompting Girouard to investigate alternative avenues of growth. He first considered opening a second chain which would offer discount merchandising, before deciding that the upscale markets had more potential. In mid-1999 the company entered negotiations to purchase the privately held Z Gallerie, a retail chain offering high-end home furnishings. The deal, however, fell apart in August, leading to the immediate departure of another CFO, Stephen F. Mangum, who had championed the acquisition. In the aftermath, the company’s stock plunged 33 percent in one day. Girouard subsequently abandoned plans to open or acquire a second chain, deciding instead to concentrate on revitalizing the Pier 1 concept by cutting prices, opening stores in smaller markets, and experimenting with larger formats. A 1,000-item online catalog was also being developed.

Principal Subsidiaries

Pier 1 Assets, Inc.; Pier 1 Licensing, Inc.; Pier 1 Imports (U.S.), Inc.; Pier 1 Funding, Inc.; Pier 1ease, Inc.; Pier-SNG, Inc.; PIR Trading, Inc.; Pier International Limited (Hong Kong); Pier Alliance Ltd. (Bermuda); The Pier Retail Group Limited (U.K.); The Pier (Retail) Limited (U.K.); Pier Direct Limited (U.K.); Pier-FTW, Inc.; Pacific Industrial Properties, Inc.; Pier Group, Inc.; Pier 1 Holdings, Inc.; Pier 1 Services Company; Pier 1 National Bank.

Principal Competitors

The Bombay Company, Inc.; Cost Plus, Inc.; Euromarket Designs Inc.; Garden Ridge Corporation; HomePlace of America Inc.; IKEA International A/S; Lechters, Inc.; Michaels Stores, Inc.; MJDesigns, Inc.; Spiegel, Inc.; Williams-Sonoma, Inc.

Pier 1 Imports, Inc.

views updated May 29 2018

Pier 1 Imports, Inc.

301 Commerce St.
Fort Worth, Texas 76102
U.S.A.
(817) 878–8000
Fax: (817) 334–0191

Public Company
Incorporated: 1962 as Cost Plus
Employees: 8,000
Sales: $685 million
Stock Exchanges: New York
SICs: 5719 Miscellaneous Home Furnishings Stores; 5947 Gift, Novelty & Souvenir Shops

Pier 1 Imports, Inc. is the parent company of Pier 1 Imports, a leading specialty retailer of decorative home furnishings, housewares, accessories, gifts, and related items. It sells mostly imported specialty items through a chain of more than 600 stores in North America. Pier 1 has grown quickly and sporadically since its founding in 1962.

Charles Tandy and Luther Henderson opened the precursor to Pier 1 shops in 1962 under the name Cost Plus. Henderson was serving as treasurer for Tandy’s burgeoning Tandy Corporation, which became best known for its Radio Shack chain. Pier 1 was inspired by the owner of a rattan furniture importer and wholesaler in San Mateo, California, that was having credit problems. To help liquidate costly inventory, the shop owner opened a liquidation outlet in 1958 called Cost Plus. Impressed by the shop’s success, Tandy offered the owner of Cost Plus a loan to start a retail Cost Plus outlet. At the same time, Tandy secured the rights to open and operate additional stores under the Cost Plus name.

The concept behind Tandy’s Cost Plus chain plan was relatively simple: a strong U.S. dollar would allow him to import items, including rattan furniture, brass candlesticks, specialty textiles, and other items, at rock bottom prices from countries like Mexico, India, and Thailand. Even with large mark–ups the goods would seem relatively cheap in the United States. Furthermore, items that did not sell well could be easily liquidated by cutting their price to near cost. Although most of the merchandise was second–rate in comparison to U.S. or European–made goods, it was popular with the large baby–boom generation, most of whom were first–time buyers of furnishings.

Tandy opened 16 Cost Plus retail outlets between 1962 and 1965. By 1966, though, Tandy’s growing Radio Shack enterprise began to take much of his attention away from his Cost Plus venture. On February 10, 1966, a group of 30 investors lead by Henderson bought the Cost Plus operation. They changed the name to Pier 1 Imports to reflect the stores’s import emphasis and embarked on a mission to expand the concept nationally.

By 1967, Pier 1’s sales had already reached $4.5 million annually, and growth accelerated throughout the remainder of the decade. By 1969, the chain had grown to 42 stores and demand for Pier 1’s goods was increasing. Pier 1 went public in 1969 to raise money for continued expansion. Pier 1 had multiplied its chain to 123 stores by 1971, which represented sales growth of more than 100 percent since 1968. Among Pier 1’s shops were stores that had been opened in Australia and England in 1971. During the following two years the chain also branched out into France, West Germany, the Netherlands, and Belgium.

Pier 1 prospered during the late 1960s and early 1970s by focusing on the baby boom generation who were looking for interesting, exotic goods like love beads, incense, leather sandals, and scrapes. “You could characterize a lot of our customers as flower children,” recounted Pier 1 chief executive officer Clark Johnson in the Dallas–Fort Worth Business Journal. “Our stores had the look of an old grocery store … and, at that time, the appeal was heavily toward cost.” As the “flower children” rushed to Pier 1 to decorate their dormitory rooms, bedrooms, and apartments, by 1973 company sales rose to $68 million and earnings to $3.8 million.

After an explosive decade of growth, Pier 1’s fortunes began to change in the mid 1970s. Importantly, global inflation and exchange rate fluctuations exposed Pier 1’s unique vulnerability to worldwide financial changes. Foreign goods became much more expensive, thus diminishing Pier 1’s important cost advantage. Furthermore, other retail chains and department stores began to vie for some of Pier 1’s market share by offering many of the same imported goods. To make matters worse, the core group of customers upon which Pier 1 had focused its energy was changing; baby boomers were becoming more sophisticated by the mid– and late 1970s and were increasingly interested in more mainstream goods. Pier 1 lost touch with its patrons and failed to change its inventory to meet market demands.

In an attempt to buoy sales and profits, Pier 1 mounted several reorganization campaigns and new marketing strategies during the mid–1970s. It even tested different types of stores, including specialty retail outlets, art supply centers, rug stores, and fabric shops. Pier 1 also diversified into several wholesale operations such as Singapore Candle Company, Southwestern Textile Company, Rug Corporation of America, and Pasha Pillows. Many of its retail and wholesale experiments languished and Pier 1 eventually jettisoned most of them.

Although it failed to sustain the rampant growth it had achieved during its first ten years, Pier 1’s balance sheet had improved slightly by the late 1970s. By 1979, the chain included approximately 300 stores worldwide and sales and profits had stabilized. Pier 1 merged with Cousins Mortgage and Equity Investments (CMEI) in 1979 in an effort to boost its capital. Then, in 1980, the board of directors brought in Robert Camp to help improve the company’s performance.

Camp had successfully operated his own chain of Pier 1 stores in Canada and had a knack for retailing. Camp forced Pier 1 to reevalúate its buying operations and store location strategies. He also focused on improving visual merchandising techniques. During 1981 and 1982, Pier 1 consolidated its retail import operations, closed marginal stores, opened larger outlets in more profitable locations, and shifted from novelty items to higher quality goods. Investors were impressed by Camp’s initiatives. Within two years, sales increased 41 percent to $165 million and operating income jumped 66 percent, to $6 million. Pier 1’s stock price quickly rose from about $1 in 1980 to more than $7 by 1982.

Just as Pier 1 began to build momentum under the direction of Camp, control of the company changed hands. Under the leadership of Charles (Red) Scott, La Jolla, California–based Inter–mark, Inc., a billion–dollar holding company with a reputation for turning ailing companies around, bought Pier 1. Camp eventually left and Scott hired Clark Johnson to run Pier 1 in 1985. Johnson, who was known as an aggressive and sociable business man, had a varied background that included experience in both the furniture and sporting goods industries. He had also managed lumberyards and had partnered with Jack Nicklaus to run MacGregor Golf Co. As president of Wickes Furniture he engineered the turnaround of that company during the mid 1970s. Likewise, he boosted sales at MacGregor from $17 million to $50 million in just five years.

Like Camp, Johnson initiated numerous changes within the Pier 1 organization. He immediately sold Pier 1’s two major subsidiaries, Sunbelt Nursery Group Inc. and Ridgewood Properties Inc. He also jettisoned the mail–order business, which lost more than $1 million in 1985 alone. In addition, Johnson developed plans to modernize Pier 1’s computer information systems, upgrade advertising and marketing programs, and consolidate its North American management offices. Furthermore, between 1985 and 1989 he closed more than 60 marginal stores and refurbished most of the company’s existing outlets at an average cost of $190,000 each. More aggressive managers were brought in and given the autonomy to make critical decisions.

Perhaps Johnson’s most notable strategic contribution during the mid–1980s was improving Pier 1’s attentiveness to its customer base. “It was clear that their was a huge audience out there which had once felt a tremendous allegiance to Pier 1,” recalled Johnson in Adweek’s Marketing Week.” I believed we could rekindle that allegiance if we showed them that we were in tune with their new values.” Johnson retained New York PR agency Makovsky & Company to conduct what it termed “the most comprehensive study of the American home ever undertaken.”

The study was designed with two goals in mind: 1) to determine whether or not Pier 1 was on track with the values it was emphasizing in its stores; and 2) to generate publicity as the sponsor of the study. Among other statistics, survey findings indicated that 92 percent of college–educated Americans were satisfied with their homes; 86 percent decorated their homes themselves; 57 percent believed that their homes were nicer than what they grew up in; and an overwhelming majority described their home interior as casual. As hoped, the media reported the survey’s findings and brandished Pier 1’s name on the cover of major national newspapers and on television screens.

Confident of his strategy to win back Pier 1’s customer base and re–position the company, Johnson embarked on an aggressive program of growth in 1986. He set of goal of doubling the total number of Pier 1 outlets by 1990 and increasing the average floor space and annual sales of the stores. Pier 1 achieved its goal one year early. By 1989 the company had doubled its chain to include more than 550 outlets worldwide. In addition, profit margins increased and the average ticket value of store items rose to $25 (from just $5 in the early 1980s). As a result, sales leapt from $173 million in 1985 to $517 million by 1990. More importantly, profits soared from $60 million to $210 million during the same time period.

Encouraged by Pier 1’s success, Johnson boldly proposed expansion plans for the next decade. “The best way to predict the future is to create it,” Johnson stated in Adweek’s Marketing Week. “Pier 1 Imports has a vision of the kind of company it would like to become. By the year 2000 Pier 1 will operate more than 1,000 stores, producing more than $1.25 billion in sales and serving more than 10 million customers.”

Despite grandiose plans, Johnson was forced to slow Pier 1’s pace in 1990 after seven years of expansion. Economic sluggishness in the United States forced the slowdown. Although sales swelled to $562 million in 1991, net income shrunk as retail markets became increasingly competitive. Pier 1 repurchased Sunbelt Nursery Group late in 1990 in an effort to diversify and reduce its total dependence on retail markets. By early 1991, its chain included more than 650 stores, but Johnson planned to open only a few new stores during 1991 and to close several as part of a company consolidation plan. Pier 1 trimmed its home office staff, reorganized management, and brought its advertising activities in–house to save money. Johnson explained that the company was shifting its focus from growth to more acute management of its existing operations.

Pier 1 stumbled in the early 1990s. But, unfortunately for its parent company, Pier 1 was the bright spot on its list of company holdings. Intermark’s other major holdings consisted of many different kinds of companies including Dynamark (a manufacturer of mag wheels), Liquor Barns, and Western Sizzlin. Intermark’s stock price plunged during 1990 from $12 to $1.37 per share as the company posted a loss of $67 million (on the heels of a $10 million loss in 1990). To avert disaster, CEO Scott was forced to sell Pier 1, making Pier 1 a truly public company. Scott’s responsibilities at Intermark were reduced as the company slid into debt–induced jeopardy.

Economic sluggishness continued to hurt Pier 1 during 1992 and 1993. Although its growth in comparison to the late 1980s was meager, it managed to sustain moderate revenue gains and to stabilize profits. Net income surged to about $25 million annually during 1992 and 1993 as sales climbed to $629 million. Unfortunately, Pier 1’s long–term debt obligations also increased, from about $92 million in 1990 to $147 million by 1993. As part of its reorganization strategy, Pier 1 repositioned itself as “The Place to Discover” in 1992. It also decentralized operations to better serve its 600 stores. In an effort to generate capital, Pier 1 again sold its interests in Sunbelt Nursery.

Although Johnson’s efforts at Pier 1 were often lauded by outside observers as exemplary, critics cited drawbacks of his management style and derided Pier 1’s financial condition. Of concern to some analysts was Pier 1’s excessive debt, which had multiplied five–fold since Johnson’s arrival. In addition, Pier 1’s operating costs had increased, significantly reducing the company’s overall profitability compared to leaner retailers competing in the same market. Other criticisms related to Pier 1’s selection of inventory and marketing strategy. Johnson himself had been derided for his high–flying, glad–handing management style as well as his high compensation.

Buffeting criticism, though, was a history of strong growth and relatively steady earnings. In addition, Pier 1 had boosted its image through charitable donations, which included a $785,000 gift to UNICEF in 1992. Pier 1 had started donating to UNICEF after Johnson’s arrival in 1982 and had supplied over $3.3 million to the organization between 1985 and 1992 from the sale of greeting cards in Pier 1 outlets. The extremely successful fund raiser was established by Marvin J. Girourd, a Pier 1 veteran and the president and chief operating officer of the company in the mid 1990s.

Pier 1’s sales surged to $685 million in 1994, an increase of about eight percent over the previous year, which helped diminish doubts about the validity of Pier 1’s overall approach. The company opened 48 new stores and closed 17 during 1994, bringing the total size of its international chain to 636. Pier 1’s reach extended into most of the United States, with an emphasis on Florida, California, New York, Texas, and Ohio. It operated 30 stores in Canada and was active in several joint ventures, particularly in Mexico and the United Kingdom.

Pier 1 continued to emphasize imports from low–cost producers in the mid 1990s. China, its largest supplier, contributed about one–third of its inventory in the early 1990s. Other major suppliers included India, Indonesia, Thailand, and the Philippines. Sales of furniture and kitchen goods each represented about one–quarter of the company’s revenues in 1994. Textiles and jewelry each comprised about 13 percent of sales, and the remainder was attributable to miscellaneous gifts and accessories.

As revenues continued to increase in early 1995, Johnson reaffirmed his intent to pursue the ambitious growth plans he had proffered in 1989. He still wanted to build the Pier 1 chain to more than 1,000 stores by the turn of the century and to push sales past the $1 billion mark. Pier 1 was pursuing growth through a multi–faceted strategy in the mid 1990s that highlighted international expansion. Johnson hoped to open 100 foreign stores by the end of the decade by buying into existing retail chains or setting up joint ventures. Pier 1 was already operating two stores in Mexico through a joint–venture with Sears and was involved with a chain of ten stores in England that were called “The Pier.” The company focused future expansion efforts on South American countries.

Pier 1 was also striving to boost sales through its credit card, which was used in ten percent of store purchases in 1994, and through the creation of smaller, more conveniently located stores. To that end, Pier was bucking the retail trend toward giant warehouse stores and was initiating a program of building multi–store locations that provided a better shopping experience (e.g. better parking, customer service, and a more pleasant atmosphere). In addition, it was experimenting with new advertising media, including television, in an effort to lure more young buyers. While expansion reminiscent of Pier 1’s late 1980s growth was unlikely going into the mid 1990s, long–term annual growth potential of 15 percent or more through the 1990s according to one major securities analyst suggested a bright future for the retailer.

Principal Subsidiaries

Pier 1 Imports.

Pier 1 Imports, Inc.

views updated Jun 08 2018

Pier 1 Imports, Inc.

founded: 1962

Contact Information:

headquarters: 301 commerce st., ste. 600

fort worth, tx 76102 phone: (817)878-8000 fax: (817)878-7883 toll free: (800)245-4595 url: http://www.pier1.com

OVERVIEW

Pier 1 Imports, a chain of specialty retail outlets carrying home furnishings, decorative accessories, and gifts imported from more than 40 countries around the world, operates more than 725 stores. Pier 1 stores may be found in 47 states, the District of Columbia, 4 Canadian provinces, Puerto Rico, the United Kingdom, Mexico, and Japan. Each store stocks between 4,000 and 5,000 items of merchandise, 50 percent of which change each year.

The company imports more than 80 percent of its merchandise from outside the United States. By buying directly from overseas suppliers, Pier 1 eliminates the intermediary markup, keeping the prices in its stores reasonable and attractive to consumers. In addition to its stores, the company has warehouse distribution centers located in Los Angeles, Chicago, Baltimore, Savannah, Columbus, and Fort Worth, its home base.

Pier 1 was born in the early 1960s when Luther Henderson and Charles Tandy invested in Cost Plus, a rattan furniture outlet based in San Mateo, California. In 1962 the company's headquarter was moved to Fort Worth. A few years later when Tandy moved on to establish Radio Shack, Henderson engineered a leveraged buyout of Pier 1. Cost Plus continued to operate as a separate entity. By the end of the 1960s, the company, which had grown to more than 40 stores, went public.

COMPANY FINANCES

Pier 1's revenue in fiscal 1998, which ended February 28, 1998, topped the billion-dollar mark at almost $1.1 billion, producing net earnings of $78.0 million; this compared to a net income of $44.1 million on revenue of $947.1 million in fiscal 1997. The company posted net earnings of $10.0 million on revenue of $810.7 million in fiscal 1996, compared to a net of $24.9 million on revenue of $712.0 million in fiscal 1995. In fiscal 1998, furniture sales accounted for 34 percent of total revenue, while decorative accessories generated another 23 percent. Sales of bed and bath products made up 18 percent of total revenue, followed by housewares at 14 percent and seasonal products at 11 percent.

ANALYSTS' OPINIONS

In a February 1998 interview with Pier 1's CEO Clark Johnson on the Fox News Network, Neil Cavuto, host of the Cavuto Business Report, praised the company's sharp growth in sales. Referring to a January 1998 same-store sales increase of more than 21 percent, Cavuto said, "It is the 28th straight month that Pier 1 has reported double-digit sales growth. Wall Street likes this consistency of late."

HISTORY

Pier 1's roots go back to 1958 when a California rattan furniture wholesaler experienced financial problems. He opened his doors to liquidate the inventory under the name Cost Plus. The sale was successful, so in 1962 when he decided to open a retail store with a similar inventory in San Mateo, California, he sought the help of a successful Fort Worth businessman, Charles Tandy, whose hobby and leather craft stores were becoming increasingly popular. As part of the deal, Tandy was given the right to open and operate more of these Cost Plus stores. In a convoluted switch, the 16 Cost Plus stores changed their names to Pier 1 in 1965. The following year, Tandy, wanting to concentrate on the chain of electronics hobby stores he purchased in 1963, divested himself of Pier 1. The company was purchased by Luther Henderson and 30 investors.

Pier 1 went public in 1969. At that time, the company had 42 stores and was launching its first Canadian retail shops. The early 1970s were years of growth and frustration for the company. Additional retails stores opened in the United States, Australia, and Europe during this period. Then, in the mid-1970s, inflation and a deregulation of exchange rates for the dollar increased the cost of imported items. The company tried retailing a variety of other merchandise, but none of these efforts succeeded. The stores were closed, as were a number of Pier 1 stores abroad. In 1979, a Pier 1 outlet became the first in the chain to chalk up $1 million in sales, and the company announced plans to merge with Cousins Mortgage and Equity Investments.

The company underwent another metamorphosis in the 1980s. Rather than selling inexpensive trinkets, the company decided to sell more high-ticket goods. Pier 1 was purchased from a holding company in 1985, which brought even more changes—the most notable of which was the appointment of Clark Johnson as president and chief executive officer. That same year, Pier 1 spun off its nursery and real estate businesses and also launched a campaign to increase the number of stores in the chain. By 1989, Pier 1's annual sales had topped $500 million.

Despite economic problems in the early 1990s, the company successfully reorganized and brought advertising in house to cut operating costs. In 1992, the company celebrated its thirtieth year in business and reported earnings of $26.3 million.

The company discovered it had $19.3 million in trading losses in December 1995. Robert Herndon, chief financial officer, reportedly failed to monitor the financial firm with which the company was dealing. Capital Insight Brokerage Inc.'s S. Jay Goldinger was investigated by the Securities and Exchange Commission after huge losses were posted by his biggest clients, including Pier 1 Imports Inc.

The Asian economic crisis that emerged in the latter half of 1997 turned out in some ways to be a blessing in disguise for Pier 1. The currency devaluations in several Asian countries increased the buying power of the dollar in the region. Though the company enjoyed this decrease in the cost of some of its imports, Pier 1 executives realized it was a temporary phenomenon. It acknowledged that if civil unrest eventually erupted, it could disrupt the import flow. In a February 1998 interview on the Fox News Network's Cavuto Business Report, CEO Clark Johnson said he expected the Asian economies to bounce back. "I think a year from now they'll be back on the move again. So we're positive about the fact that this thing is going to have a resolution. And we're going to continue to buy a lot of products over there and help support them."

FAST FACTS: About Pier 1 Imports, Inc.

Ownership: Pier 1 Imports is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: PIR

Officers: Clark A. Johnson, Chmn. & CEO, 66, $1,300,000; Marvin J. Girouard, Pres. & COO, 57, $900,000; Stephen F. Mangum, Sr. VP, CFO, & Treasurer, 43, $280,000

Employees: 11,000

Chief Competitors: Pier 1's competitors include: Bed, Bath & Beyond; Bombay Company; Crate & Barrel; Hanover Direct; Lechter's; Linens 'n Things; and Williams-Sonoma Inc.

Despite the ever-changing tide of national and global economies, Pier 1 remains successful, according to company literature, because it "eliminates wholesale markup and is able to offer quality products at a value to the consumer." Pier 1 plans to have 900 stores operational in the United States, Canada, and Puerto Rico by the year 2000.

STRATEGY

Most of Pier 1's stores are located in urban downtown areas or strip centers, but a 1996 experiment put eight Pier 1 stores in shopping malls that also contained other high-end home furnishings merchandise. Though the stores involved in the experiment did break even, company executives, leary about the future of mall retailing, said this was not a path the company immediately planned to pursue, according to HFN The Weekly Newspaper for the Home Furnishing Network.

Pier 1 CEO Clark Johnson said the company's buying strategy "has always been to buy lots of different items but not too much of them," according to the Wall Street Corporate Reporter. "If they turn out to be good sellers, we reorder and we continue to reorder as long as the business supports that kind of behavior. If they turn out to have been a buyer mistake or for one reason or another don't sell to the degree we thought they would, then we simply close out that item."

INFLUENCES

As of 1986, the typical Pier 1 customer came from a household income of $26,500, but the company wanted to increase that to a customer from a median income of $50,000. The company's strategy for this involved reprogramming store locations, improving the quality of the product line, and putting an even higher priority on customer service. The strategy paid off. By December 1996, the company had a customer base with a median income of $54,000, which was 42 percent above the median income in the United States. According to CEO Clark Johnson, "This is one of the reasons that the company has been enjoying unusual success in the last several years."

CURRENT TRENDS

Stephanie Schlecht-Maki, a buyer for Pier 1 told HFD-The Weekly Home Furnishings Newspaper in 1994 that about 8 percent, or $54.83 million, of the company's sales were from tabletop items. These items are moderately priced in the range of $2 to $12 per piece for dinnerware, glassware, and flatware. The emphasis on home furnishings embellishment by "nesting" consumers in the mid-1990s translated into increased sales for Pier 1.

In the 1980s Pier 1 ventured into apparel during the era when chains such as the Gap and the Limited were booming. Pier 1 and other retailers nationwide reported slower apparel sales—a result of declining sales, bankruptcy, and consolidation within this retail segment. According to an analysis of the market, "the seasonality of clothing means lots of markdowns to clear out stock as seasons change; there's far less change in home furnishings." Consumer research also found that the public had no idea the company even sold clothing. Pier 1 eliminated its clothing line in favor of an all-home-merchandise format, which was completely implemented in its retail stores before the end of 1997.

Retail experts are not surprised. "There's been an explosive shift from apparel to the home," said Jackie Bivins, a retail consultant based in New Jersey, in a wire service interview. "Boomers aren't buying the big-ticket items, like sofas and washing machines, so much, but after 15 or 20 years in the same home, they're sprucing up the place with some new pillows and placemats," she said.

Among the steps taken by Pier 1 to increase sales in its U.S. and Canadian stores was an aggressive national television advertising campaign, the 1997 price tag for which exceeded $40 million. CEO Clark Johnson said of the ad campaign that when consumers see Pier 1 commercials squeezed between those for companies like General Motors and Coca-Cola, "it brings legitimacy to the company and helps to drive our traffic."

CHRONOLOGY: Key Dates for Pier 1 Imports, Inc.

1962:: The first Cost Plus store opens in California
1965:: Cost Plus changes its name to Pier 1
1969:: Goes public
1977:: The company pays its first quarterly dividend
1979:: A Pier 1 outlet in Detroit becomes the first to hit the $1-million mark in sales
1985:: Pier 1 is purchased by a holding company
1993:: Partners with The Pier, a chain of retail import stores in London, England
1998:: Sales top $1 billion for the first time

PRODUCTS

Pier 1 is a retail firm specializing in home furnishings. Its primary merchandise, according to corporate information, includes rattan and wicker furniture, decorative pillows, baskets, hand-carved wood items, hand-painted ceramics, and candles. The primary product areas for Pier 1 are furniture, home and decorative accessories, tableware, kitchenware, baskets, seasonal products, specialty items, bed and bath products, and a special line of private label food items.

CORPORATE CITIZENSHIP

Pier 1 Imports takes seriously its responsibility to the communities in which it operates. The company pursues a number of philanthropic concerns on the international, national, and local levels. On the international front, Pier 1 is the world's largest retailer of UNICEF greeting cards. The company also is a cosponsor of UNICEF's "Kids Help Kids" greeting card contest.

On the national level, since 1991 Pier 1 has been a sponsor of the Susan G. Komen Breast Cancer Foundation's Race for the Cure series of five-kilometer and one-mile walk/runs, held in scores of cities across the United States. The company pays the entry fee for any of its employees who want to race on behalf of Team Pier 1. Locally, Pier 1 has been active in the United Way and Adopt-a-School campaigns in its hometown of Fort Worth, Texas. In 1986, the company adopted E.M. Daggett Elementary School, one of Fort Worth's largest inner-city schools. Both the corporation and its employees are committed to a number of programs at the school designed to reinforce the importance of academic pursuits.

GLOBAL PRESENCE

Pier 1 is a solidly international company on two levels. First, most of the products in its retail outlets have been imported from more than 40 countries around the world. Secondly, the company has pursued an aggressive program of expansion outside the United States. In addition to stores in Canada and Puerto Rico, Pier 1 is a partner in The Pier, a chain of stores in the United Kingdom. In Mexico, the company operates boutique-type outlets in a number of Sears de Mexico stores. Pier 1 is also involved in a joint venture with Atasuki Printing Company of Japan and has opened a number of stores in that country.