Rapidly growing e-commerce sales are placing pressure on the profit margins of home furnishings retail chain Pier 1 Imports Inc.
“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,” Pier 1 CEO Alasdair James told analysts on the retail chain’s fiscal Q2 2018 earnings call this week, according to a transcript from Seeking Alpha. “There is no question that technology is hastening unprecedented change in the way consumers shop and identify with brands.”
Pier 1, No. 120 in the Internet Retailer 2017 Top 500, reported that online accounted for about 27% of its sales, or $110.1 million, during the second quarter of fiscal 2018 ended Aug. 26. That’s up 35.6% from $81.2 million during the same time last year, when online accounted for about 20% of sales.
Through the first six months of fiscal 2018, Pier 1 reported online accounted for about 26% of overall sales, or $212.5 million, up 28.9% from $164.8 million in the year-ago period, when online accounted for 20% of overall sales.
With online sales growth comes increasing delivery and fulfillment costs. The retailer’s delivery and fulfillment net costs were equal to 4.6% of total sales during the quarter, compared with 2.6% last year. Year to date, delivery and fulfillment net costs are equivalent to 4.3% of overall sales, compared with 2.6% last year.
Part of those increased fulfillment costs, James says, stem from shoppers buying more expensive, bulky items, like a couch, online and having them shipped to their homes.
“The (profit) margin erosion really is driven most when you have large-ticket items, large dining tables, sofas—those kinds of furniture items,” he said. “That’s where we see the biggest effect for us in terms of costs.” Pier 1 last year rolled out free shipping on all online orders with a $49 minimum after testing out several different order minimums.
Pier 1 also is optimizing its supply chain processes, such as improving its product scanning technology and enhancing warehouse management systems in its distribution centers, James said.
One of the retailers main goals for the rest of the year is to have shoppers make purchases via multiple channels, James said.
“Our customers that shop online and in-store actually spend three times [more than] those customers that either [shop] one channel or the other,” he said.
For the second quarter of fiscal 2018 ended Aug. 26, Pier 1 reported:
- Net sales of $407.6 million, down 0.4% from $405.8 million during the same time last year.
- A year-over-year comparable sales gain, including e-commerce, of 1.8%.
- A net loss of $7.8 million, compared with a loss of $4.1 million.
For the first six months of fiscal 2018, Pier 1 reported:
- Net sales of $817.1 million, down 0.9% from $824.2 million during the same time last year.
- A year-over-year comparable sales gain, including e-commerce, of 0.7%.
- A net loss of $10.8 million, compared with a loss of $10.1 million.