Thursday, July 1, 2010

Pier 1's Cardiac Stress Test

Happy Thursday!

It's July 1.  Holy smokes where did the first half of this year go?

I saw a tweet earlier this morning asking if anyone was halfway to accomplishing goals for the year.  It's a question many ask but it assumes that goals only have a one year shelf life with the creation of wholly new unrelated goals the next January 1.  What about goals that span a few years to fruition, that force you to make some tough decisions which may seem weird or (gasp) that show you have looked at your business stressors in the eye?

In my last post, we talked about embracing failure and used cardiac stress tests as example of why seeking the causes of failure is actually a good thing.  I encouraged us to be marketing, really business, cardiologists to look for the stressors in branding, messaging, products, service, customer experience, etc., so that we can identify where we are failing and write our business prescriptions to save us from an untimely end.

It's not silly to stand up and admit the possibility of failure.  And, really, do you want to be known as the business version of the Emperor's New Clothes tale?  I certainly don't.

And, interestingly, neither did Pier 1.  The other day, I came across a brief (yet interesting) interview of Alex Smith, Pier 1's CEO.  What was striking to me was the decision to cease e-commerce sales in 2007 during a time in which everyone was selling online or starting to sell online.  Let's face it: selling online is like breathing.  Everyone does it.  And yet they still walked away from it.

This was because they understood the failure factors in their underlying business model namely store operations and profitability.  They were low on cash and the stores weren't operating at satisfactory levels.  And because they knew that when (not if) they fixed it, they'd be able to be open again for e-business.  Here's what he said:

"The pie is still there ... We had a very acute business situation that we had to fix.  [E-commerce sales were] de minimus, so we weren't giving up a whole lot by getting rid of it."

I wish I were smart enough to use a term like "de minimus" but setting that aside, I wish I were smart enough to understand broad, longer term vision as opposed to letting the desire to "keep up with the Joneses" to inform my business strategy.  In 2006, Pier 1's internet sales were only 8% of the total.  So, he was right to call it small in the grand scheme of things and to redirect funds to improving profitability and store operations which brought in the lion's share of their revenues.

In the meantime, Pier 1 has closed 200 stores and renegotiated rents on many others.  They've streamlined merchandising and improved inventory management.  Result?  In times where stores are struggling and desperate for positive same store sales numbers, they were able to report 14% same store sales increase in May with June numbers trending in the same direction.  Their shares have risen about 29% this year.  Juxtapose those numbers with some depressing consumer confidence numbers and market volatility we've seen recently and you'll understand that Pier 1 understands their mission to survive and are committed to it.

Pier 1 will be back into the e-commerce pool this year.  But, in another instance where they identify and understand failure, this won't be a cannonball jump -- more like a tentative toe dip into the pool to check the temperature like site to store shipping instead of shipping direct to the customer.  He further says:

"One of our greatest strengths is that we have got this great nationwide coverage of stores ... We believe that 70% to 80% of our target customer base lives within a very comfortable drive time of our stores.  We also know from our research that customers buying home product like to see and touch the product before they finally commit, even though they do a lot of research online."

What I like about this is that it's a realistic blend of the necessity of e-commerce presence while at the same time understanding the realities of their business model and also understanding their type of customer.  In other words, they understand the critical points where they might fail and are considering ways to mitigate or eliminate failure.

Would Pier 1 still be around if they didn't cease online selling in 2007?  Maybe.  But maybe not.  But it was also risky to cease sales in the broader "perception is reality" point of view.  They stopped selling while others ramped up.  They went on an e-commerce diet.  Think about when you've been on a diet -- you really want that piece of cake, that juicy steak or those fries.  But you know you have to stay away from it.  It's hard!

And so is acknowledging where you might be failing and doing something about it.  What's your view?  I'd love to hear from you!


Parissa Behnia
Idea Chef

No comments:

Post a Comment