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Pier 1 is betting on ecommerce to carry them forward

September 19, 2014

Pier 1 Imports is diving head first into the ecommerce game.

Pier 1 Imports is diving head first into the ecommerce game. The company has been investing significantly in technology infrastructure to promote more online sales and ecommerce customer activity. Pier 1 expects these investments will lead to increased revenue. Their mentality is: you have to spend money to make money.

Many other retailers have also shifted away from simply selling merchandise in stores and have been using digital platforms to reach consumers. Macy’s, Target and Best Buy are all retailers that endorse an omni-channel approach. Presumably, by doing the same thing, Pier 1 can dramatically increase its sales. Pier 1 expects to grow its ecommerce sales in 2016 to $400 million, and projects total revenue to equal $2 billion for the fiscal year, reported ZDNet.com

Selling their products online can help Pier 1 avoid having to discount their products when traffic to their physical stores is low. In the second quarter of this year, the company’s income was disappointing – posting earnings of $9.2 million from a top line revenue of $418.6 million. While revenue did go up by 5.8 percent in the first quarter, income was almost half that of the previous quarter.

Total Pier 1 sales remained positive however, so it is evident that the investment in technology infrastructure affected the bottom line. As the market trend shifts toward purchasing products online instead of in stores, store traffic is decreasing. Once the investments are completed and the ecommerce vision of Pier 1 is actualized, the company should post strong net income numbers.

Integration of website and store
CEO Alex Smith explained that customers are responding well to the omni-channel approach. Almost a quarter of ecommerce sales at Pier 1 are originated in stores and a third of all orders made online are picked up by customers. The integration of store and website is now an effective way to serve clients. The idea that the ecommerce platforms were separate from the physical business has proven to be false.

“The concept of our stores being a separate operation now seems like ancient history. Like other omni-channel retailers, our stores are becoming sales and customer experience centers,” said Smith.

Essentially, Pier 1 is using their stores as showrooms. Customers can view items that they like on the website or in person, tailor their products online and then place their orders. Items are either picked up or shipped home. The company said that over 50 percent of its ecommerce sales have contact with the physical locations, reported ZDNet.com

Investments in technology
In the near future, according to Smith, the company plans to use its stores as fulfillment centers – each location will be able to receive customer orders shipped from their Pier 1 warehouses and deliver them to their clients. Additionally, the company’s stores will be supplied with additional computers and tablets, making the store experience more integrated with the ecommerce platform. The company also plans to hire more staff in the IT, merchandising and marketing fields.

As it stands, Pier 1 allocates half of its capital expenditure on technology and half on its stores. The company expects that the ratio will change to approximately 70 percent of spending to be for technology and 30 percent for its physical locations.

The company reported recently that its ecommerce business was responsible for 9.7 percent of sales, which is more than they had anticipated. In the preceding year, ecommerce only accounted for 4 percent.

Shares of Pier 1 declined nearly 10 percent recently after the company revised its earnings forecast down, claiming that ecommerce initiatives were slowing the company’s earnings growth due to capital investments, reported the Wall Street Journal. It remains to be seen how the investments increase sales in the future, but analysts are optimistic.

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