Pier 1 Imports wants "more digital" to chase a younger customer base

It’s not just about being an omni-channel retailer these days; it’s about being a profit-optimised omni-channel retailer. In other words, omni-channel ‘cred’ as a goal in itself isn’t enough. Those days are gone.

It’s an interesting message from Alasdair James, CEO of Pier 1 Imports, as he contemplates a strategic repositioning of the US retailer to bring more automation to the business, to become “more digital” and - perhaps most challenging - to attract what he calls a “broader customer base”, for which read ‘get the millennials spending’.

From a channel perspective, Pier 1 is doing OK with its digital drive to date. Second quarter e-commerce sales grew 35% with sales penetration expanding to 27% versus 20% a year ago. But there’s a lot more to be done to optimize this contribution. James states:

We recognize that we need to deliver topline growth, while developing tactics to mitigate pressure on gross profit from our growing online sales channel to ensure the company can thrive in any future retail environment. There is no question that technology is hastening unprecedented change in the way consumers shop and identify with brands. All of this, whether brick and mortar, online only, or omni-channel are tasked with redefining the shopping experience. If you choose to be omni-channel as we have, it is important to chart a path to more profitable omni-channel sales through offsets to the cost of fulfillment.

The most profitable customers are those that make use of both online and offline channels, he adds:

When I actually think about our customer, what we’re seeing is that she likes to shop in-store and online. So the conversation that I’m having with my finance team is, how do we measure the profitability of our business by ZIP code, rather than focusing it clearly on an in-store or an online purchase? Our customers that shop online and in-store actually spend three times those that which our customers that either have one channel or the other.

So the biggest challenge for me is not store base secure, but actually how do I get more on my current customers to shop in both channels…The number of customers that shop what we describe as purely online, so at home, purely online but delivered to home, is actually quite far and away the smallest proportion of the way our customers engage. The majority either visit the store and execute through the store, having it delivered to home or in-store or doing it at home [and] having delivered to store.

Too old customers

As for who ‘she’ is, the Pier 1 customer, the answer there is - she’s too old! James says:

The core Pier 1 Imports customer is 45 years to 60 years old. We believe there is an opportunity for the brand to appeal to millennial’s between 30 and 40 years of age.

Knocking a decade or so off the core demographic is a big ask, of course. Solutions to address this may include new merchandise or brand extension, but in the immediate future, social and digital marketing is seen as the key enabler:

Initially we believe we can cultivate this audience through increased social media and digital marketing activity. Our research has emphasized the importance of value as a key consideration in our customers’ buying decisions. We believe we can improve our overall value proposition through a combination of enhanced assortments across critical categories and key sourcing initiatives. Once the brand positioning is clear, we’ll be redefining our marketing programs, so that our campaigns better support our brand DNA.

There’s also a need for some back-room IT upgrades to support omni-channel thinking. The firm has a new CIO in the shape of Bhargav Shah, who is charged with driving increased automation across the retailer’s operational processes:

There’s a fair amount of work that must be done to bolster our systems and better aggregate our data, so that we're positioned to utilize and benefit from new tools…[Shah ]is establishing an infrastructure that will allow for the utilization of advanced analytics and machine learning to drive efficiency. To that end, we expect to be able to optimize our promotional programs to capture efficiency.

As we strengthen our IT platform, adding tools and automation we’ll be better positioned to gain insights, leverage those learnings and improve our agility. While we've identified areas for improvement, we're fortunate to have a solid omni-channel foundation from which to build.

My take

There’s a lot of ‘jam tomorrow’ in play here, albeit flavored with some pragmatic theoretical thinking. I’m slightly more alarmed by the revelation that the firm has hired an outside consulting firm to come and shape the strategic direction. That spells to me that (a) there’s a lack of understanding about what needs to be done and (b) it’s going to slow down the necessary transformational activity.