Pier 1 Imports is finished. The emporium of rattan chairs, hurricane lamps, napkin rings, colorful glassware, wicker peaco*ck chairs and mandala print sofa pillows has already closed half of its stores in the U.S. and Canada while closing two distribution centers and beginning “going-out-of-business” sales.
The Pier 1 Imports demise is not a story about the coronavirus killing a brand. The Pier 1 Imports saga is a cautionary tale about ignoring elemental brand-business principles: a sad story of bad brand-business mismanagement that began years before the coronavirus came ashore. Pier 1 Imports’ road to Chapter 11 proceedings was paved with violations of some fundamental principles of marketing.
We read about the “retail apocalypse” but it is also a fact that many retail businesses lost their way before coronavirus. J Crew, Barney’s, Macy’s and others were in trouble well before Covid-19 arrived at their doors. The effects of Covid-19 will continue to impact stores, hotels, restaurants, airlines and other businesses. But as with people, the virus has greater impact on those brands with negative underlying pre-conditions.
Pier 1 Imports began in 1962 under the name Cost Plus Imports opened by Charles Tandy and Luther Henderson. At the time, Mr. Henderson was the treasurer for Tandy Corporation. You might know the name Tandy Corporation: it was the owner of Radio Shack, another bygone retailer.
The original Cost Plus Imports, in San Mateo, California was a liquidation enterprise for an importer of rattan furniture. It was very successful. Charles Tandy was impressed enough to request the opportunity to open another Cost Plus Imports store while securing the rights to establish additional stores. Cost Plus Imports became Pier 1 Imports in 1966, selling unusual home goods and furnishings from India and Southeast Asia.
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At its inception, Pier 1 Imports was a haven for 1960’s flower children looking for unusual items. The store sold Indian elephant-base side tables, nubby-woven, colorful wall hangings, love beads, incense, and Papasan wicker chairs. During its 40th anniversary in 2002, Pier 1 Imports used the theme, “From hippie to hip.” And, now, the brand finds itself in hell.
As The New York Times describes the stores’ offerings: Pier 1 Imports had…”a recognizable, quirky aesthetic that drew customers who would drop in just to check out the latest animal umbrella stands, colorful painted plates and woven baskets.”According to a management professor at the University of Wisconsin, “Twenty years ago, you could look at a product and you would really know that it came from Pier 1. They were the only big national firm with that kind of unique identity.” And, following in a tongue-in-cheek article, “The Enduring Trends That Rule Our Décor,” The New York Times credits Pier 1 Imports as a 1960s retail outlet selling rattan – with all its requisite “Victorian curlicues and exoticism” remaining a furniture item “…that is not going anywhere.”
So, what happened?
The answers for the demise of this “quirky” establishment can be found in the January 2018 earnings report for the year ending December 2017. The CEO at that time, Alasdair B. James explained his 3-year turnaround plan in the context of the marketing mistakes the chain had made.
Here are three fundamental brand-business principles Pier 1 Imports violated leading to its downfall.
Know Your Competition
Brand leaders tend to believe that they define a brand’s competitive set. This is wrong. Customers define the competitive set. You call the competitive shots. At Pier 1 Imports, management looked at the home goods marketplace and assumed a competitive set incorrectly. Mr. James told analysts that although there was competition from online sellers such as Houzz, Wayfair, Amazon and others, retail competition was incredibly fierce as well. HomeGoods, Homesense, Rooms to Go and Target were all contenders.
But, Mr. James said that Pier 1 Imports had been focused elsewhere. Specifically, “I think we had our eyes on the wrong competition… we saw… Williams-Sonoma, Pottery Barn, Crate & Barrel … as our main competitors. … Through rigorous analysis we are now clear that our key competitors are not those guys. … As a result (of focusing on the wrong competitors) our brand relevance has actually declined, particularly driven by the fact that our value proposition has declined.”
Part of the rigorous analysis pointed out that 50% of Pier 1 customers shopped at Target, HomeGoods and Cost Plus World Market. Only 13% of Pier 1 customers shopped at Pottery Barn and Crate & Barrel. And, compared to the brick-and-mortar home goods stores where Pier 1 customers actually shopped, Pier 1 seemed expensive: the same or similar items were more affordable elsewhere. Next to Pottery Barn, Williams-Sonoma and Crate & Barrel, Pier 1’s prices were less expensive. But, relative to the brands in its actual competitive set, Pier 1 was no longer a bargain.
Merchandise was out of sync with the actual competitive set. Mr. James told analysts that customers compared Pier 1 to HomeGoods and online enterprises like Wayfair. Comparing the brand to Pottery Barn, Williams-Sonoma and Crate & Barrel required a much different assortment. Most merchandise needed to be replaced… a significant cost.
Know your brand’s value
Value was another area where the management team made mistakes. First, management held the mistaken belief that price and value are the same. Price and value are not the same. Every brand must be a good value regardless of price. A Mercedes buyer thinks that Mercedes is a great value. A Toyota buyer thinks that Toyota is a great value. Price is the monetary cost. Value is total costs (price, effort and time) relative to the desired total brand experience. Pier 1 Imports’ offerings were no longer a good value.
Management does not decide a brand’s value. The customer decides the brand’s value. But, Pier 1 Imports did not manage the brand with this fundamental principle in mind. Although “me-too but cheaper” is a strategy, customers of Williams-Sonoma, Pottery Barn and Crate & Barrel did not perceive Pier 1 Imports’ offering as comparable.
Mr. James described the scenario to analysts in terms of price and value being the same. He said it was as if you wanted a $400 chair. If you compare an equivalent chair for $800, the $400 chair is a good value. But, if the equivalent chair is being sold elsewhere for $200, the very same chair at $200 is a better value.The Pier 1 competitive set was not the $800 chair store, but the $200 chair store.
However, the executive team did eventually recognize that that Pier 1’s entire value equation was awry. It was not just about the price. It was about the costs relative to the total brand experience. Pier 1 could not compete successfully.
Know and love your customers
Mr. James told analysts that it was a great surprise to him and the management team that consumers were incredibly knowledgeable about competitive pricing and where “the best price” could be found. Underestimating your customer is really, really bad brand-business management.
Furthermore, after a market segmentation study, the management team saw an opportunity with two segments of shoppers. These were shoppers who had not been targeted aggressively by Pier 1. According to the research, two segments of shoppers were identified as priority segments where, as Mr. James noted, “…(we will have) a greater opportunity for growth than we’d experienced before as we’ve not had that real focus.” Translation: we are focusing on gaining new customers “who spend $70 billion” in the home goods categories.
Attracting new customers is critical but not at the expense of your current customers. Current customers are already fans of the brand. It is less expensive to keep current customers interested than trying to interest new customers, especially in a highly competitive category.
According to The New York Times, Pier 1 Imports had other problems as well. The brand had limited influence with Millennials; it did not have a decent online strategy – Etsy, Wayfair and Amazon all conveniently sell quirky, eclectic items at lower prices; it did not modernize its stores nor refresh its offerings; and its 3-year turnaround plan initiated all at once chewed up resources to such a degree that the brand fell into “negative earnings and liquidity.”According to a senior analyst at Moody’s, the “challenges and costs of trying to make all the changes at once backfired causing a rapid decline….”
Pier 1 Imports made some serious misjudgments when it came to basic principles of marketing. The 3-year turnaround plan failed. The management teams’ previous assumptions about who were the customers, where these customers shopped, how these customers perceived the competitive set and how they perceived the brand’s value were flawed leading to unfortunate marketplace strategies. The brand-business imploded. It is questionable if the brand will emerge from bankruptcy proceedings restructured for business.
It is sad. The chain once was a wonderland of diverse, unusual, sometimes exotic items. At Christmas time, Pier 1 Imports offered everything you could want for wrapping the best-looking presents and for setting the most festive table. Its colorful, textured, uncommon home goods filled a lot of apartments and homes. But, as some analysts now observe, the brand was so far behind the eight ball when it came to competing in today’s marketplace that it is far from certain Pier 1 Imports will survive Chapter 11.
Pier 1 Imports is a troubled brand-business that cannot blame coronavirus for its illness. Its pain was self-inflicted. Coronavirus may not have caused the end of Pier 1 Imports, but its great winnowing effect on mismanaged, mis-marketed retail brand-businesses will probably dash any hopes for Pier 1 Imports’ return.
Brands can live forever, but only if properly managed.
