Pier 1 Imports, Inc. Business Information, Profile, and History

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.

History of Pier 1 Imports, Inc.

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.'

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.

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 Lease, 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.

Chronology

• 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.