Pier 1 moves toward a drop shipping model to grow online sales
September 30, 2016 11:29 AM
Online sales are growing at home furnishings retailer Pier 1 Imports Inc., and with that in mind, the retailer will make more products available online.
E-commerce accounted for about 20% of sales during the fiscal second quarter and the first six months of the fiscal year, up from around 17% during the year-ago periods, Pier 1, No. 124 in the Internet Retailer 2016 Top 500 Guide, reported in its Q2 2017 earnings report. Based on overall sales of $405.8 million, that means Pier 1 did approximately $81.2 million in online sales during the quarter ended Aug. 27, up 9.8% from $73.9 million last year. Through the first six months of the year, based on overall sales of $824.2 million, Pier 1’s online sales totaled approximately $164.8 million, up 11.2% from $148.2 million last year.
CEO Alexander Smith told analysts on Pier 1’s earnings call that the company will increase the number of products it offers online only as well as add product categories. The retailer also plans to increase sales by moving to a drop shipping model, wherein product manufacturers ship online orders directly to shoppers.
“Initially, the aim is to fill in the assortment gaps that we have today and test new categories with much less risk using vendor-owned inventory,” Smith said, according to a transcript from Seeking Alpha. “We will start modestly and then ramp up the SKU count once we're confident in the processes. We believe that drop ship has the potential to add meaningfully to our e-com sales.” Smith did not provide a timeline for when Pier 1 will start using drop shipping to fulfill some online orders.
The company also is experimenting by lowering its free shipping threshold in an effort to drive online sales, and Smith said the change will help Pier 1 become more competitive.
“We have tested many permutations of shipping thresholds and surcharges, and the goal of this strategy is to remove a significant barrier to online conversion and put us on a level playing field for the online-only retailers,” he said. “Free shipping is a promotional cost which we have largely offset thus far by reducing other promotional activity.” Pier 1 offers free shipping on online orders of $49 or more.
While online sales are growing, they have not been enough to offset store sales declines. However, Pier 1 still views its stores as an integral part of its business, Smith said. “The separation of e-commerce and store sales is arbitrary,” he said. “When you add together our sales that are placed from the store and those that are picked up in store, it accounts for approximately 90% of net (total) sales. [Stores] serve as a convenient place to pick up online orders. They also are a convenient place to return merchandise. We fully expect the significant store base will be part of our future.”
For the fiscal second quarter ended Aug. 27, Pier 1 reported:
- Net sales of $405.8 million, down 6.7% from $435.0 million last year.
- A comparable sales decline, including e-commerce, of 4.3%.
- A net loss of $4.1 million, compared with a $3.2 million profit.
For the first six months of fiscal 2017, Pier 1 reported:
- Net sales of $824.2 million, down 5.5% from $871.9 million last year.
- A comparable sales decline, including e-commerce, of 3.4%.
- A net loss of $10.1 million, compared with a $10.0 million profit.