Let’s go through a case study based on an article written by Warren Shoulberg Senior Editor of Forbes.
Article: Pier 1 is sinking
These are the facts of the case:
“Unfortunately, the disaster befalling the home furnishings retailer… [is]
result of man-made decisions and circumstances that are increasingly making
its long-term (maybe even short-term) prospects look pretty gloomy…
Another rotten quarter – …increased losses and failure to meet even the most
pessimistic of forecasts… the stock has lost half its value since the start of the
year…
Pier 1 has been awash in problems for a generation but the difference this time
is that most retailers that sell home furnishings… are having pretty decent
years, benefiting from demographics, a good housing market and an overall
economy that play to the segment’s strengths…
How did the retailer get lost at sea? Let us count the ways:
1. First off there is a physical store base that reflects a different era in
retailing… vastly overstored for the current retail climate. Many of those
locations are free-standing, often in mall adjacency areas, but as its no
longer a destination store it has none of the advantages…
2. Starved for cash over the past decade, the stores have grown tired and
rundown. Competitors like Target are spending billions to update their
physical plants, Pier 1’s budget has significantly fewer zeroes.
3. Layouts are cluttered, not particularly intuitive to shop and merchandise
classifications are oddly over-assorted in some areas and under
represented in others. Furniture floor samples are sometimes broken,
damaged or otherwise uninviting to shoppers.
4. While about a quarter of the company’s sales are now online, that
drastically trails competitors that get half their sales through the web.
a. The company is still paying for shutting down its e-commerce
operation years ago during a particularly nasty cash crunch.
5. Earlier this year the CEO said the company realized, after doing some
research, that it had misjudged its customer profile and was targeting a
much more upscale shopper than the people in fact who bought at the
store. It’s not clear what’s more troubling: not knowing your
customer…or admitting it.”