Coursera Business Strategy - Strategic Analysis

Alokenanda Lahiri

Introduction1

Texas-based Pier 1 Imports, a home décor retailer, operates about 990 stores in 49 US states and

another 80 locations across Canada. The company supplies merchandise and licenses its name to in-

store departments at 47 Sears stores in Mexico and one in El Salvador selling more than 6,000 items

(imported from more than 50 countries) through more than 1,070 Pier 1 Imports stores across North

America. Its stores offer a wide selection of indoor and outdoor furniture, lamps, vases, baskets,

ceramics, dinnerware, candles, and other decorative accessories. Pier 1 To-Go allows shoppers to order

and reserve items online for pick up and payment in its stores. In addition, the company supplies

merchandise to more than 55 stores in Mexico owned by Grupo Sanborns.

Tight correlation in company’s performance with the housing industry has definitely been a negative as

the company struggled to make economic rents during and after the mortgage crisis of 2008.Since

then, however, the company has committed to turn things around and has made significant headways

as seen by their financial numbers per Exhibit 1.

SWOT Analysis

Strength

Sources artifacts from a variety of countries and cultures. Eclectic collection. Reasonably priced. Offers online shopping. Employees are committed, caring who make taking care of customers’ needs their first priority. Company invests in a number of charitable drives to demonstrate corporate social responsibility.

Weakness Home décor as an industry depends on people’s need to furnish and decorate their houses. Systemic risks such as the housing market crash of 2008 adversely affect this industry as a whole and put a dent on sales.

Opportunity

Building on existing network and relationships created with remote suppliers across the world. Diversifying into fashion accessories and into event-based décor such as weddings, birthdays, bar mitzvahs will allow the company to maintain stability in revenues as these channels are not affected by any one single factor such as the housing economy.

Threat

Virtual connectivity has made establishing and fostering supply networks with exotic markets much easier these days. Also, popularity of Home Décor shows on channels such as HGTV along with accessibility, sustainability and affordability of building material options have led to the rise of DIY-ers who are gradually eating into the overall home décor market’s revenue. pie.

1 source: www.vault.com

Coursera Business Strategy - Strategic Analysis

Alokenanda Lahiri

Competitive Position Analysis

While the company boasts of a carefully curated network of suppliers that ensures low imitability due

to challenges in replicating such relationships by new entrants, product differentiation suffers as other

competitors in the space offer a similar spectrum of exotic wares at comparable prices. Sellers’

bargaining power is increased when it comes to Pier 1 Imports.

While the company doesn’t command a niche space, an established, stable network of suppliers and

leadership in the interior design ideas space leading to solid market acceptance of goods offered seem

to be some of the key competitive advantages.

Some of Pier 1’s competitors are Ikea, World Market (a unit of Bed Bath & Beyond (BBBY)), and

EuroMarket Designs. However, market share of Pier 1 Imports seems to be relatively low as

demonstrated by Exhibit 2 and Exhibit 3.

A side-by-side analysis of certain key attributes for Pier 1, World Market and IKEA has been shown in

the table below:

Area Pier 1 World Market IKEA

Customer service

Prompt, courteous, considerate

Curteous, polite, however, slow in order fulfillment (shipment from source retailer)

Credibility

A+ in BBB. also involved in charity, donating money to these organizations

B- in BBB. A+ in BBB

Website & social media presence

Facebook, Twitter, Pinterest, Google+

Presence on Facebook, Twitter, Pinterest, Google+ more significant due to higher number of followers.

Alexa lists IKEA's website at a global traffic rank of 280 and a US traffic rank of 330. In addition, Google gives it a Page Rank of 6, which is really good. Extensive following on social media such as Facebook, Google+, and Twitter. No mention of Pinterest.

Pricing & Packages

Competitive, lower cost items, eg, a 5’x7’ chocolate tufted rug is priced at $249. Rewards card based discounts.

Slightly higher cost items eg. A 5’x8’tufted Damask rug is typically priced at $349. Seasonal deep discounts.

Ikea offers unbeatable prices for its products and they are of sound quality. However, the pieces are factory-manufacture, and are seldom unique in nature.

Payment, Shipping & Refund policies

Accepts major credit cards, Pier 1 Rewards Card, and personal checks. Shipping: Ship to customer or the option of ordering online and shipping for pickup at the store. Refund: 45 days

Accepts all major credit cards, Paypal, but no personal checks. Shipping: standard, expedited, and freight options but no ship-to-store option available. Refund: 60 days

All major credit cards, debit cards, and cash. No Paypal or checks. Refund: 90 days

Source: Knoji.com, http://www.slideshare.net/DominiArtis/pier-1-imports-marketing-strategy-

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Coursera Business Strategy - Strategic Analysis

Alokenanda Lahiri

Strategy Map

Five Forces Analysis

Entry

Low exit costs (-)

Existing contracts (+)

Steep Learning Curve (+)

Hard-replicate supply network (+)

Brand recognition & loyalty (+)

Sellers

Sellers treat segments differently -

Price discrimination possible (-)

Many sellers exist (+)

Sellers are not concentrated (+)

Switching costs are low for the

company (+)

Rivalry

Number of competing firms

may go up (-)

Incentive to fight is low (+)

Product differentiation

possible (+)

Buyers

No monopsony (+)

Low switching cost (-)

Segmented Buyers (+)

Not concentrated (+)

Product not differentiated (-)

Substitutes

Low switching cost (-)

High Cross-price elasticity of

demand (-)

Volume of

sales

Exclusivity of Merchandize

IKEA

WORLD

MARKET

Pier 1 Imports

Coursera Business Strategy - Strategic Analysis

Alokenanda Lahiri

Capabilities Analysis

Source: www.vault.com

Conclusion

Although the company has been able to correct the ship since the 2008 downturn and get back on a

growth path as detailed in Exhibit 4, it should really focus on its merchandizing strength and its trusted

network of suppliers created over a period of time to thwart the threat of substitutes and new

entrants. Its focus should primarily remain in handmade goods sourced from faraway lands and a

directional change to embrace contemporary pieces in order to differentiate from big box retailers

such as Target and Wal-Mart should be given careful thought as goods retailed could end up being

manufactured large scale at factories, thus jeopardizing uniqueness of items offered. Social

responsibility demonstrated through various charity organization involvements and a customer-first

culture possessed by the employees should be key differentiators from other bigger volume competitors

such as World Market.

People

• Curteous, responsible

• Putting customers first

Processes

• Pier 1 To- You, a fully functional e-commerce site -- where shoppers can pay for merchandise online and have it delivered. (aims at online sales contributing at least 10% of total revenues by 2017.)

• Merchandising played a key role in the company's return to profitability and will continue to do so.

• Downsizing stores and distribution networks.

• Reward points, members-only offers, student discounts help them achieve a loyal brand following

System • Upgrades to existing stores such as the installation of new lighting and

air conditioning equipment) and to open new locations.

Coursera Business Strategy - Strategic Analysis

Alokenanda Lahiri

Glossary

Exhibit 1

Financial Information

After a prolonged stretch of declining sales and stubborn unprofitability, Pier 1 Imports has returned to growth mode. Indeed, sales increased 4% in fiscal 2014 (ended February), to $1.77 billion (a total last seen eight years ago). And while net income fell 17% year over year, to $107.5 million, the retailer logged its fifth consecutive year solidly in the black. Same-store sales were up 2% in fiscal 2014, after rising by 7% and 9% in 2013 and 2012, respectively. Sales per square foot (an important metric for Pier 1, which is emphasizing quality over quantity in its retail operations) increased to $202 in fiscal 2014 versus $198 the prior year (and $184 in 2012).

Cash flow from operations grew by $35.2 million in fiscal 2014 versus 2013, to $159.2 million, driven by the timing of payments, partially offset by an increase in inventory.

Source: www.vault.com

Exhibit 2

Direct Competitor Comparison

Pier 1 Imports IKEA

EuroMarket Designs

Bed Bath & Beyond (World

Market)

Market Cap: 480.90M N/A N/A 6.94B

Employees: 5,000 900 600 62,000

Qtrly Rev Growth (yoy): -0.01 N/A N/A 0.02

Revenue (ttm): 1.89B 28.51B1 1.05B2 12.10B

Gross Margin (ttm): 0.53 N/A N/A 0.38

EBITDA (ttm): 131.04M N/A N/A 1.69B

Operating Margin (ttm): 0.04 N/A N/A 0.12

Net Income (ttm): 39.63M N/A N/A 841.49M

EPS (ttm): 0.46 N/A N/A 5.10

P/E (ttm): 12.48 N/A N/A 8.73

PEG (5 yr expected): -3.47 N/A N/A 2.28

P/S (ttm): 0.24 N/A N/A 0.56

Source: finance.yahoo.com

Coursera Business Strategy - Strategic Analysis

Alokenanda Lahiri

Exhibit 3

Source: finance.yahoo.com

Exhibit 4

Growth strategy

Pier 1's improved performance follows the downsizing of its store and distribution networks. Looking to the future, the retailer in 2012 unveiled a three-year plan to drive sales and profitability. It has achieved its goal of boosting sales per retail square foot to $200 (up from $184 in 2012) and achieving operating margins of at 10%. Indeed, the company now expects to reach $225 of sales per retail square foot and operating margins of 11% to 11.5% by the end of fiscal 2016.

Through 2014 the company plans to invest $200 million from operational cash flow to fund upgrades in existing stores (such as the installation of new lighting and air conditioning equipment) and to open new locations. Pier 1's brick-and-mortar expansion plans will add 50 outlets to its store count (through about 80 openings and 30 closures). The stores have been emphasizing a less cluttered look with more contemporary pieces; the firm has cleaned house of exotic furniture and funky tchotchkes. The merchandising shift sets Pier 1 apart from big-box competitors -- including discounters Target and Wal-Mart -- moving in on its market for trendy, inexpensive merchandise.

Source: www.vault.com

Pier 1 Imports, 1.89

Ikea, 28.51

Euromarket Designs, 1.05

Bed Bath & Beyond, 12.1

Other, 21.65

2015 Home Decor Market Revenue Distribution (in $ Billions)

Total - $65.2 bn (forbes.com)