Behind Pier 1's Successful Turnaround: "Reactivating" Former Customers While Drawing New Ones
Pier 1 (PIR) has accomplished something that seemed like a forlorn hope during its mid-decade decline: boosting sales from new customers, an accomplishment that provides real hope it can complete its long turnaround process.
Three years ago, Pier 1 appeared headed for bankruptcy, but it brought in new CEO Alex Smith and began closing stories and restructuring its purchasing to replace inconsistent and an often unattractive merchandise assortments with a selection that was more up to date and stylish.
As new merchandise arrived, the retailer recognized that it needed to pull consumers back to the store, and so it focused on holders of Pier 1 credit cards. Those customers weren't shopping the store like they used to -- as reflected in its declining sales and losses -- but they remained fond enough of it to maintain their credit cards. The retailer pictured glittering new products in mailers and invited them to in-store sales events that offered bargains beyond the points they gained with each purchase, which provide a $20-off award for every $500 spent.
The approach proved effective. For fiscal 2010, Pier 1 posted profits and a one-and-a-half percent increase in comparable store sales, those in locations open for at least a year. In its 2011 first quarter, the retailer picked up the pace, with double digit comparable store sales gains that more than made up for the slide it experienced during last year's recession.
Smith said Pier 1 has an opportunity to "reactivate" even more of its former shoppers, and will continue to target them. But, critically, it is also broadening marketing efforts. It has increased direct mail and newspaper advertising designed to reach new customers and is adding radio and even a little TV, with much of broadcast focusing on holiday. It will boost marketing budgets by a third and place a particular emphasis on gift-hunting consumers who are likely to shop a wider array of stores in the holiday season. While the marketing budget expansion totals only $1 million -- not much for a national chain -- it's also a relatively low risk effort using well-established methods.
Pier 1's recent profits have enabled it to launch some modest initiatives that also should provide gradual sales gains. It has begun refurbishing stores with new shelving and displays intended to drive sales. Initially, only 24 of 1,050 stores will be covered, but current plans call for the renovation of 20 more going forward. Pier 1 also has expanded its website, finally adding the full range of available merchandise to its Internet portal. The company is preparing an initial test of site-to-store delivery, too, which other retailers are using to offer customers free shipping if they are willing to pick up orders at local stores.
A while back, I expressed some concern that Pier 1's rebound might run out of oomph once it regained the easiest-to-recover card holding customers. So far, that hasn't happened. The percentage of sales on Pier 1 credit cards increased in the latest quarter to almost 26 percent from a bit over 25 percent of sales in the year-earlier quarter. However, the growth of Pier 1 credit card purchasing as a percentage of sales actually slowed in the quarter if compared with the past fiscal year.
Given that Pier 1 card holders get rewards with every purchase, they certainly have an incentive to use their credit. But two-thirds of the $25 million top-line sales increase Pier 1 enjoyed in the first quarter was paid by other means. The numbers suggest that customers other than shareholders have begun responding to Pier 1's better merchandise and more expansive marketing.
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