Pier 1 Imports' 6 Guideposts to Omnichannel Evolution

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Pier 1 Imports' 6 Guideposts to Omnichannel Evolution

By Nicole Giannopoulos - 09/30/2014
When Pier 1 Imports first set out to develop its omnichannel business, it developed a "crawl, walk, run" approach. The retailer anticipated that the transformation would take it from a highly profitable retail store format, to an equally compelling omnichannel business known as 1 Pier 1.
 
However, things are progressing better and more quickly than expected. E-commerce has accelerated rapidly – growing from its launch in July of 2012, to 4% of sales last year, to nearly 10% of sales through the first half of this year. "It’s a much faster pace than we anticipated, which means we’ve had to act very quickly to support this growth, give our customers what they want and prepare for our future as a leading multibillion-dollar omnichannel retailer," said Pier 1 president and CEO Alex Smith.
 
To help create the operation and financial models supporting its omnichannel evolution, Pier 1 has laid out six key guideposts, including: brand traffic conversion and average ticket; stores of sales and customer experience centers; merchandise margin and gross profits; fulfillment and home delivery; SG&A expense and capital allocation. Here, we will explore each of these guideposts and its impact on Pier 1's omnichannel journey.
 
1. Brand Traffic Conversion & Average Tickets
Brand traffic, which reflects store and web visits combined, grew 8.5% in the second quarter and 9.9% for the first half. The retailer is implementing new strategies designed to drive traffic and further improve conversion rates and average tickets. Moving into the back half of this year, there are four major initiatives that will take shape and bear fruit quickly:
  • Offering a broader assortment both in-store and online – expanded online-only SKUs four-fold to more than 1,600 and increased the offerings available through Express Request program. Currently online-only and Express Request SKUs online account for approximately 40% of sales through Pier1.com.
  • Providing store associates with additional tools to help them engage with customers more effectively. On the heels of the great success with cash wrap PCs, decided to add a second PC and are adding tablets to 600 stores next month. Also rolling out Pier 1 Imports swatch stations, introduced in-store in August to showcase 300 fabric and finish options, representing more than 2,000 SKUs in the furniture and rug departments, and customers can also purchase their own swatches online.
  • A critical area of focus is marketing. The retailer is evolving its creative approach with the help of its new creative director Nancy Binger, and will finish in-store floor sets. Just launched a new TV campaign "Complements" with new messaging that's more aspirational. An increasing amount of attention and spending will be dedicated to digital initiatives, including search engine optimization, more sophisticated email programs and a new affiliate program to name just a few. Launching a customer data excellence program which will see benefits starting to flow next year. Once complete, the retailer will have an advanced data warehouse which will allow for better segmenting customer files into actionable subgroups and tailoring messaging and customer communications accordingly.
  • Will also focus on driving traffic conversion and tickets on Pier 1.com. The most important enhancements will start impacting business during the fall, these include mobile redesign, online recommendations and improved site curation. The solution is cutting-edge technology which will upload optimize and customize content for each device, providing faster load times and a streamlined checkout. Online recommendations will go live this fall to enhance conversions. The last significant change to Pier1.com is an increased focus on curation and inspiration. These enhancements will also help store associates show store customers the full beauty of the expanded assortments.
 
2. Turning Stores into Sales and Customer Service Centers
Stores and websites are inextricably linked. Today more than 50% of all e-commerce transactions touch the store. In fact, stores have an increasing responsibility for all aspects of Pier 1's business – traditional cash and carry, Express Request, ship to home, order online, pickup in-store and home delivery.
 
The acceleration of the retailer's investment in 1 Pier 1 will bring the company further down the road more quickly. At the same time, with approximately 60% of its leases coming up within the next three to four years, the retailer can carefully evaluate real estate needs and adjust the size of its store portfolio accordingly. Each store and market will be reviewed to determine the appropriate number of stores to maximize market share and optimize profitability.


3. Merchandise Margin & Gross Profit
Pier 1 strongly believes that there is an opportunity to drive some additional value from its private-label collection, especially those products that are truly unique to the markets. The retailer is moving back to a promotional strategy based on markdowns, category and SKU-based promotions and incentives for its reward card customers.


"The rapid growth in e-commerce sales is impacting our margins as we incur increased fulfillment costs," continued Smith. "However as we gain efficiencies of scale on fulfillment and continue to make improvements to our supply chain, the channel mix degradation of gross profit will diminish and subside."


4. Fulfillment & Home Delivery
The decision has been made to fast-track plans for a second fulfillment center by two years. The new facility in Columbus, OH opened in August, affording the retailer ample time to be fully up and running well in advance of holiday.
 
Now Pier 1 is developing the capability to pull furniture and other large products from its six distribution centers. "Once the transition of those six DCs is complete and when combined with the capacity of our two fulfillment centers we will have the ability to service $600 million to $700 million of e-commerce sales," noted Smith. "We will reduce potential out-of-stocks and increase inventory efficiency."


5. Selling, General & Administrative Expenses
The marketing initiatives discussed above are anticipated to drive an incremental $12 million of expense over last year. This will bring the retailer's marketing spend slightly above its traditional 5% rate for the full year 2015 with the investments most heavily weighed to the second and third quarters.
 
Additional headcount in merchandising and marketing e-commerce and IT departments has armed Pier 1 with the talent needed to continue building its omnichannel business, however, this results in a higher corporate administration expense of approximately $10 million this year.


6. Allocation Plans
The retailer is also deploying capital to areas that are critical to supporting the rapid growth of the 1 Pier 1 strategy, including e-commerce. These include technology stores and the newly opened fulfillment center. In fiscal 2016, capital expenditures will moderate by 20-25% to a range of $60-70 million.
 
"We are confident that our new omnichannel business model will deliver exceptional growth once we reach scale," continued Smith. "I have tremendous conviction in our strategies and couldn't be more proud of the quality of our execution and the work being done by our wonderfully talented and dedicated associates."
 
There will always be more to do, however, primarily returning merchandise margins before the impact of e-commerce to historical levels which the retailer anticipates. The retailer also has to work to ensure that the size of its store base is appropriate for the new business model.
 
"Many of you heard me say it’s an exciting time to be in retail," noted Smith. "Never before has our industry been so fast-paced – the way the customer reacts, the speed at which goods are brought to market, and the products reads made. The growth opportunities for a well-executed omnichannel business are limitless, and Pier 1 Imports is one of those businesses. We’ve laid out [this roadmap] to fully and successfully transform our business as e-commerce becomes a bigger and bigger percentage of our revenues."