Pier 1 Imports aims to transform via e-commerce, IT

The company will spend about 70 percent of its capital expenditures on technology and the rest on stores. Today, the capital spending is split 50-50.

Pier 1 Imports is doubling down on e-commerce and the technology infrastructure that goes with it as the company laid out a plan it hopes will ultimately lead to better profits.

The reality that Pier 1 is going from brick-and-mortar stores to a so-called omni-channel approach isn't all that unique. Retailers ranging from Macy's to Best Buy to Walmart to Target are all doing similar moves. What's different about Pier 1 is that e-commerce can change the company more dramatically. Walmart could arguably grow its e-commerce business to be larger than Amazon and still not be material to annual sales.

Pier 1 is hoping to double its e-commerce sales to $400 million in fiscal 2016 when it is projected to have total revenue of $2 billion.

In addition, Pier 1 is also banking that an omnichannel strategy can allow it to throttle back on discounting. Pier 1's second quarter was a disappointment and the company cut its fiscal 2015 outlook. Turns out e-commerce growth is hurting profit margins and the company has to invest in fulfillment. Actual store traffic to Pier 1 was soft and the retailer had to discount.

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Overall, Pier 1 reported second quarter earnings of $9.2 million on revenue of $418.6 million. Revenue in the quarter was up 5.8 percent, but profit was nearly halved.

Enter omni-channel retailing. CEO Alex Smith said:

In both the first- and second-quarters, Pier 1 Imports brand traffic remained healthy, but comp store traffic was down slightly. We believe that the decline is reflective of a general malaise, as well as a shift in purchasing behavior from stores to the internet. Total brand traffic was up in the first half of the year, and importantly, in-store and online conversion and average ticket were also up. Our omni channel strategy is being embraced by our customers. We're giving them multiple ways to shop, and they love it.

As we've talked about previously, roughly one-quarter of e-commerce sales are placed from our in-store PCs, while approximately one-third of all orders placed online are being picked up in our stores. The concept of our stores being a separate operation now seems like ancient history. Like other omni channel retailers, our stores are becoming sales and customer experience centers.

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So what's the plan?

In the big picture, Pier 1 is trying to showroom itself. Use its stores as a showroom for its own e-commerce site. The company said that more than half of all e-commerce sales touch the store somehow via product touch points, express requests, home and online to store delivery.

Smith outlined the following:

  • The build-out of a new fulfillment center;
  • Retool current distribution centers to add fulfillment;
  • Additional PCs and tablets in stores;
  • Revamping Pier1.com to be more mobile friendly;
  • New hires in merchandising, marketing and IT;
  • Remodel stores.

Today Pier 1 spends 50 percent of its capital expenditure budget on technology with the rest going to stores. In the years to come Pier 1 will spend 70 percent on technology and 30 percent on stores.

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What's unclear is whether these moves will work. Analysts on Thursday noted in a bevy of research notes that Pier 1's biggest issue is weaning itself off heavy promotions. No amount of e-commerce will alter that equation.

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