Smoldering Wicker
May 1, 2007 12:00 PM, Elaine Misonzhnik
After reporting eight consecutive quarterly losses, Pier 1 Imports is running on fumes. On April 12, the Ft. Worth, Texas-based furniture retailer announced it will close 60 stores as part of a turnaround strategy. That is on top of cutting 1,950 positions or 13 percent of its 15,000 workforce. The fierce competition in its market segment, coupled with a slump in eclectic furniture sales, raises questions as to whether the chain will recover.
“I give them two years — if they do not turn around quickly, they won't have enough money and will liquidate,” says Howard Davidowitz, chairman of Davidowitz & Associates, Inc., a New York-based retail consultant. “They've made changes in merchandising, promotions, organization and nothing has worked.”
The move to close stores comes after one of Pier 1's largest shareholders, the New York-based hedge fund Elliott Associates LP, demanded the closing of up to 300 under-performing locations to straighten out the company's financial troubles, describing the pace of the management's turnaround efforts as “glacial.”
Pier 1 Imports executives would not discuss the store closings, other than to say that they would take place gradually over the coming year. As of February, the company operated 1,148 stores in the United States, including its Pier 1 Kids division. When the closings were announced, Pier 1 shares dropped 3 percent, from $7.85 at the opening of the market to $7.61 by the end of the day.
Last year, the retailer closed more than 30 stores and initiated an exploration of “strategic alternatives,” but failed to generate sufficient buyout interest. Pier 1 is not the only home furnishings chain experiencing problems. Davidowitz cited even bigger players, including Ethan Allen posting lackluster results. But Pier 1, which concentrates on wicker furniture, glassware and scented candles, also faces fierce competition from discounter Target, which sells similar accessories at lower prices.
Meanwhile, Pier 1 may be digging itself further into the hole by closing stores without the protection of bankruptcy. The retailer will now be responsible for rent on those shuttered stores, contributing to its already high debt load of $184 million.
