Often times, companies fail due to superior competition. In other cases, the industry around the target organization changes so much that it can’t adapt. Finally, you have poor leadership. Not often do you see these three factors simultaneously pressuring a company. But that’s the scenario facing home furnishings retailer Pier 1 Imports (NYSE:PIR) and PIR stock.
Since the final session of January, PIR stock has enjoyed a sizable technical recovery, skyrocketing over 15%. If you didn’t know any better, you’d imagine that the embattled retailer is gearing up for a transformational moment. But if you care about the stability of your portfolio, I have only one recommendation: Stay away.
There are publicly traded companies that will benefit from the convergence of technology and commerce, one of the many megatrends that I believe will launch carefully selected names five to ten times higher, perhaps even more.
However, PIR stock isn’t one of them. Not even close. Here are three reasons to stay away from this toxic equity.
PIR Stock Should Be Great, But It’s Not
One of the perplexing stories on Wall Street is that Pier 1 Imports should be benefiting from the economic boon we’re experiencing. Companies are hiring, which means that the labor market is incredibly healthy. And as millennials age, their earnings power increases. As well, their life priorities shift toward domestic matters, such as family building and home ownership.
Consider some of these facts since President Donald Trump took office:
- Real gross domestic product increased 7.2% to $19.2 trillion from $17.9 trillion.
- Unemployment dropped from 4.7% to 3.6%.
- The median sales price of houses sold in the U.S. increased to $324,500 from $313,100.
While the State of the Union address aroused much controversy — part of the reason being Democrats’ dispute of Trump’s economic highlights — the hard numbers don’t lie. Regardless of who or what was responsible, Main Street is doing much better than it has in years.
With so much enthusiasm — at least economically — over the Trump administration, you would normally expect a name like Pier 1 to perform well. As I mentioned, demographically, many millennials are hitting the age where home-related purchases spike.
Instead, PIR stock has a lost nearly 98% of market value since Trump’s inauguration. At the very least, such a hemorrhaging indicates a seismic shift in the industry. Unfortunately, Pier 1 has never been able to respond effectively to the transition.
Lack of Differentiation Hurts Pier 1
In 2019, most home goods consumers (56%) revealed that for dinnerware, they would prefer to purchase solid or single-color products. Moreover, plain white dinnerware ranked in third place at nearly 35%.
On the bottom of the spectrum was world-influenced dinnerware, coming in at 12.9%. As the name suggests, internationally inspired products are what Pier 1 Imports specializes in. Thus, even in the mundane world of dinnerware preferences, Pier 1 is losing.
But it gets worse. Because of the consumer shift toward modern, sleek and uncomplicated home furnishings, Pier 1 has completely lost whatever edge it had. In other words, the underlying industry has lost its differentiation opportunities because that’s not what the consumer wants anymore.
Today, dinnerware and other home decor products are purely commoditized. Price, not unique product design, wins out. And that has attracted big-box retailers like Target (NYSE:TGT), which has noticeably ramped up its home goods business.
In terms of Pier 1’s brick-and-mortar locations, Target’s disruption has made them all irrelevant. Why shop at Pier 1 when it no longer provides what customer want and Target has other product categories, such as clothing, electronics and groceries?
Additionally, since no reason exists anymore to visit Pier 1, e-commerce players have dominated the segment. With Amazon (NASDAQ:AMZN) and Wayfair (NYSE:W) providing discounted prices with the convenience of online shopping, PIR stock is treading in rough waters.
Committing the Worst Sin in Business
When you’re preparing a resume, you don’t have time to write a modern interpretation of Anna Karenina. Typically, an HR recruiter will give you about six seconds to determine whether you’re worth the next ten. Wow the recruiter in that less than half-minute space and you might have a shot at an interview.
I mention this because when looking for a job, you have to know your audience. It’s the same principle with business.
However, back in 2018, when PIR stock was beginning its descent in earnest, the company’s management team admitted that they misjudged their customer profile. Instead of targeting budget-minded shoppers, they instead focused on more affluent customers.
I’m not sure how you can make that mistake. Pier 1 has always catered to middle-class shoppers seeking quality products at “good value,” per its website.
Whatever the case, the leadership team blundered badly by fouling up a business basic. You have to know your market and your customers. Unfortunately, this was one too many errors for Pier 1 to realistically come back from.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.