Pier 1 Imports

Well, things are not looking good for Pier 1 imports. If you're not on their storefronts, that you've probably seen because they've typically had around 1,000 locations spread across the United States and Canada. They claim to have them in every major metropolitan area in the US, so there's They sell furniture and what they call decorative accessories, meaning rugs, mirrors, pillows, lamps, vases, candles, things along those lines that you could use to decorate your home. As of 2019, 67% of their sales came from decorative accessories and the rest was furniture. Let me tell you what's been going on with them, and I think you'll agree that things are not looking good. Here's the big news, they filed their 10Q, their third quarter report, on January 6, 2020, and along with it announced their plans to close almost 450 stores, which is just about half of them. And if you look deeper into the reports, it becomes clear why they're doing it. Looking at their sales, well, they've taken a turn in the wrong direction, with 2019 being the worst of it. That 2019 figure represents their last full year, which ended in March of 2019. Their new quarterly report represents the next 9 months that followed. It's hard to make direct comparisons just yet, but based on the first 3-4ths of the year, it's looking And that's in just about every category I'm about to show you, so keep that in mind. Their net income, it's been declining since 2012, falling into the negative in 2019, and again, it's just getting worse. Comparable store sales, it tells a similar story and continues to get worse. Here's a ratio that I really It compares their debt to their equity. Higher n It's been on their eyes, but in 2019, spiked up to an unacceptable level. And they've currently actually dipped into negative equity, which means that their debt is too out of control for this ratio to even make sense. There's also the statement on their tanker report, basically saying that they may not be able to continue operating Their stock was trading at over $400 a few years earlier, today it's less than five, which is significantly worse than the rest of the market. And Moody's has downgraded their credit rating because they no longer feel that they'll be able to honor these debts. Their outlook used to be stable, and now they say it's negative. So Pure One Imports response is to close all these stores, scale them down and try to at least limit the money that they're losing. But it'still not looking There's these lease agreements, but there's one debt that'specifically concerning right now. In April of 2014, reflected in 2015 in this graph, they entered into a $190 million loan that's due in April of 2021. Looking at everything we just saw, I'm going to go ahead and say that they probably won't be able to pay it off by then, nor are they in much of a position to refinance it. So unless something big happens, I would expect this to force them into bankruptcy. All right, you get the picture. Now I want to talk about how this company grew so large and what happened to them. Right now, I could tell you the biggest reason behind their success. They started by using this model in the 1950s and they still use it today. They take advantage of favorable exchange rates. One US dollar spent in the US doesn't get you nearly as much as one US dollar spent in another country. It depends on the country, of course, but they find countries where the US dollar is comparatively stronger. It's almost always Asian countries. That's where they import most of their merchandise from. I don'think I have to explain the advantages of obtaining inventory at a lower cost, but it does allow them to sell things at lower prices. I've actually seen a few different versions of how they started with some inconsistent details, so I'm going to do my best to sort of piece it all together into a version that I believe to be the most logical. It's interesting because they evolved into the chain of stores we know today in three separate stages, each involving a different person. I'll explain. In the beginning, it was William Amthor. In the late 1950s, he ran this furniture business with his family in San Francisco called Cost Plus. The name reflected how they were using these exchange rates. They would sell their furniture for what it cost plus 10%. Cost Plus. They specialized in selling imported retan furniture, which is Charles Tandy. This name you may recognize because he has a proven history of taking a small, struggling business and completely transforming it. For example, he started by taking over his family'small leather business and turning it into, well, a much larger leather business. More famously, he took another small company you've probably heard of called Radio Shack and turned it into something big. Later, he was focused on Cost Plus because he saw some potential in the strategy. The fact that they needed money provided a way for him to get involved. He provided a loan to them and eventually was able to work out a deal that said that he would have full rights to open any new Cost Plus locations. So that's what he did. By 1966, he owned and operated 16 of them with William Amthor retaining the ownership of that original location, which brings us to the third stage. This was 1966 and Charles Tandy had bought Radio Shack in 1962. You can imagine that this was a busy time for him and his company. I think he felt Radio Shack was the better investment because that's where he started focusing all his time and money. That's I hope that was all clear because I have one more layer. This deal transferred ownership of every Cost Plus store with the exception of the original which remained with William Amthor. Now, as soon as Luther Henderson and the rest of the investors gained ownership, they changed the name from Cost Plus to Pure One Imports. That way the name better reflected the fact that they imported their merchandise and better separated them from that single original Cost Plus. Then that Cost Plus later turned into the Cost Plus World Market that you may know today currently owned by Bed Bath & Beyond. Ugh, that was a lot. But back to Pure One Imports. They continued expanding from there. By the end of the 1960s, they had almost tripled their store count to 42. Then in 1970, they became a public company which provided them with a bunch of money that they used to continue expanding. By the end of the 1970s, they had grown to 300 locations and by the end of the 1980s, they had grown to 550 locations. They were able to tune in to what the customers wanted which helped them grow loyalty. They were providing everyone with this unique selection of imported items that you simply could not find anywhere else. This is big. In 1988, they introduced the Pure One Preferred Customer Card, basically the Pure One Credit Card and that helped increase their revenue. Within one year, they had 120,000 card holders and by 1994, it had sales of 100 million just from the card. It was also in the 90s when they made a big push to expand internationally, first in Puerto Rico in 1993 and then they had this partnership with a similar chain of stores in the UK called the Pure. They even started opening these store within a store type things in Sears in Mexico. So that's an overview of how they became the large international company that we all know today and I think that leads us back to their recent decline. I have a few potential reasons for it. The biggest one would have to be increased competition and the way they responded to it. In 2005, they started getting it from all angles. I guess the world finally started recognizing the demand for this sort of stuff because all these stores similar to theirs started popping up and growing and then discount stores One of the ways they responded to it was by putting a full focus on their stores and closing their online operations. It didn't seem too significant at the time since it only accounted for about 1% of their sales but we can now see how shutting down their online store in 2007 was not the best idea. It made it very easy for Amazon and all the other online competitors to take their share of the growing market. They did relaunch it in 2012 but that was sort of late and the damage was done. Plus, there's this other similar store called Home Goods that's been doing pretty well over the past few years. Ikea is another one. Things are just way more competitive than ever before and for multiple reasons they're not in a good position to fight it. I also fear that they may not be targeting the right customer anymore. I hope we can all agree that this is not a modern, trendy store. To me anyway, it looks It's just the vibe I get from the environment and the type of stuff that they're selling but then conversely, they've done well over the years by selling to first time home buyers. Their stuff isn'the highest quality but it is fairly cheap and unique, making it attractive to young people without much money to spend decorating their home. Do you see what I'm saying? They have this long history of younger customers for good reason yet today it really doesn't seem The other potential big reason for their decline is all of the clutter. The few times I've been in the store, everything was a mess. The sections all run together and everything within the sections are all scattered around. On the surface, to me, it looks But in reality, I think this is intentional to a degree. They purposely create this chaotic environment where you have to search for things and in doing so you feel rewarded when you find it and possibly end up finding other things during the search. It could be effective, but I don'think it works Maybe it has to do with the internet and how it delivers quick search results that we've all come to expect. I don't know, but if that is the case, again, they're doing a poor job in attracting the younger generations. To s Years ago, they responded to that competition in ways that may have fixed things. Pure One Imports is currently in a more competitive environment than ever before. Years ago, they responded to that competition in ways that may have fixed things immediately but ended up making things worse in the long term. Meanwhile, the competition just keeps getting worse and they're becoming less able to respond to it. Then we have these unorganized stores and questionable core customers and they took out this $190 million loan at a very bad time, combine all of it, and I think it helps explain what's been happening to Pure One Imports. Let me know in the comments. Do you agree? Are these the biggest reasons for their struggles or are there other factors that I failed to mention? What's your perception as a customer? These n So if you're one of those people, why did you stop? Also, what do you see for the future of the company? Do you think that they could bring those sales back and pay off the debt or is it too late? And then I have to ask, is there even anything worth saving? Do they provide anything that you can't find somewhere else? I'd