Pier 1 shifting strategy back to low-dollar items and variety

Wall Street wasn’t wowed by Alex Smith the takeover artist, but everyone should like this: He’s all about the merchandise.

The chief executive of Pier 1 Imports was hammered for bidding on Cost Plus because Pier 1 has much work to do. Same-store sales fell again in its most recent quarter, continuing a long, long trend.

But that measure alone masks the retailer’s progress and the reason for Smith’s confidence.

Since he arrived 16 months ago, he’s been beefing up Pier 1’s buying staff and product mix and has more than doubled the number of items in each store. That has produced tangible results, including more shoppers buying something on each visit.

They’re also buying more items than in the past, although the total ticket hasn’t climbed. This low-price merchandising strategy plays to Pier 1’s strength in product development and buying and offers an antidote for recessionary times.

Two years ago, Pier 1 was pursuing the opposite tack. It talked about removing the clutter in its stores and playfully pledged to get rid of knickknacks. Today, the stores are packed with merchandise and have the feel of an Asian bazaar, harking back to Pier 1’s glory days.

Lots of impulse items are on display, they won’t bust the budget, and they can’t be found anywhere else. A wire jewelry hanger in the shape of a dress form sells for $12. A summer hanger sachet in the shape of overalls and a matching blouse freshens up a closet for $6. A butterfly net sells for $5.

"We’d lost that wonderful, eclectic, whimsical mix of Pier 1 products," Smith told reporters after last week’s annual shareholders meeting.

He said the company had 12 buyers when he arrived. Today it has 20 buyers, 20 assistant buyers and 20 planning managers — all working to get new items into Pier 1 every week so that customers will get a surprise on each visit.

"The creativity and brain power that’s going into building our assortment is just so, so different," he said.

Smith was frustrated that some reporters hadn’t visited a Pier 1 store in several months because the merchandise changes so frequently and, to his eye, the effect has been so dramatic. (Hint to job-hunters: Smith says he ends any interview immediately if the applicant hasn’t been in a store recently.)

Smith, a native of England, keeps a low profile in town. He won’t pose for photos, saying he wants news coverage to focus on the company, not him. But he’s not bashful about expounding on retailing and quickly becomes animated.

"The machine needs to be well-oiled, needs to be efficient," he told shareholders, noting that Pier 1 has to be strong in information systems, distribution and finance. "But when it comes down to it, what matters is what the customer experiences in the store."

That’s all customer service and merchandising, and they’re on the same trajectory.

"We get better and better every month that goes by," Smith said.

For many years, even when the company struggled, Pier 1 executives talked up their merchandise. They often said their stores never looked better, and that was usually true.

But that alone couldn’t guarantee success. A few years ago, Pier 1 was being challenged from above and below. Higher-end retailers like Williams-Sonoma and Pottery Barn sold similar high-dollar furniture, and Target and Wal-Mart started carrying many familiar, low-price impulse items.

The company decided it was best to take on the high-end guys, so it cleared stores of little things and stocked more furniture. The housing bust wrecked that strategy, and Smith has returned Pier 1 to its roots: finding and designing pieces you never expected and can’t resist.

"We’re aiming for something with a sweet price point that makes you smile," said Leslie Eades, director of trend and product development.

Stores have about 5,000 items today, up from roughly 2,000 a few years ago. And Pier 1 changes the mix frequently, so shoppers will be rewarded for visiting more often. Smith likes to invoke the image of a treasure hunt, and that goes to what Pier 1 does well.

Buyers scour for ideas when they’re abroad, in showrooms and on the road. Other goods are developed by Pier 1’s own staff and manufactured elsewhere.

This fall, the retailer is adding more food baskets; bath products for women; toys for kids, adults and pets; and even stationery.

Furniture remains a major sales category, accounting for 40 percent of revenue, and Eades says the emphasis there is on adding more design value. That translates into more finishes and detail, curved aprons and legs, nailhead trim, and higher-end fabrics.

At the annual meeting, when Smith was still defending the Cost Plus deal, he said the combined companies would save at least $50 million by eliminating jobs in the back office and headquarters.

But one thing he pledged not to touch was the Cost Plus buyers.

"They give the company its flair and style," Smith said.

Even at an acquisition target, he never forgets what matters most.