Pier 1 hires CEO whose past plans failed
Retail strategy expert says if he was a gambler, he’d bet firm will sink
Robert Riesbeck played the turnaround game twice in recent years. Both times ended in bankruptcy. Now he’s been given a third chance as chief executive officer of Pier 1 Imports Inc.
Investors are hoping things will be different this go around after electronics chain HHGregg Inc., led by Riesbeck as CEO, liquidated in 2017. About two years later, Fullbeauty Brands Inc. filed for Chapter 11 with him running its finances.
Of course, these companies might have been too far gone for anyone to save. Yet Pier 1, in dire straits long before Riesbeck’s arrival, is itself in need of dramatic changes, market watchers say.
By dismissing 40 per cent of its corporate staff and shuttering about half of its roughly 900 stores, Riesbeck is betting that by getting smaller, he can save the nearly 60-year-old homegoods outlet, which has posted seven straight quarterly losses. Others expect him to soon be presiding over yet another bankruptcy, an outcome that the company has warned is possible.
“If I were a betting person, I would bet they will continue to sink,” said Steve Dennis, president and founder of SageBerry Consulting, a retail-strategy firm. “The fundamental problem is the value proposition. That’s the thing that’s broken.”
Pier 1 named Riesbeck chief financial officer in July, and four months later he also took on the top job when Cheryl Bachelder stepped down after less than a year as an interim CEO. Under her leadership, cost cuts and store closures did little to stem the bleeding. Yet Riesbeck has largely doubled down on the strategy with a push to massively shrink the business.
“We will deliver improved financial results over time as we realize the benefits of our business transformation and costreduction initiatives,” Riesbeck said Monday in a statement after another disappointing earnings report.
A company representative declined to comment for this story or make Riesbeck available for an interview.
Riesbeck, 55, spent time at Nike early in his career, and in 2006 became CFO of Marsh Supermarkets, a Midwest grocery chain owned by privateequity firm Sun Capital Partners. Four years later, he joined Sun Capital, which specializes in distressed situations, as finance chief of a portfolio of firms with $5 billion (U.S.) in annual revenue.
Marsh didn’t make it, either. Sun sold off divisions, and the chain filed for bankruptcy in 2017 before liquidating.
Riesbeck’s previous posts show a history of slashing costs and closing stores — tactics that ultimately didn’t help companies avoid bankruptcy. About a year into his tenure as CEO at HHGregg, the chain said it would close 88 stores and three distribution centres. A Chapter 11 filing came four days later, which ended in liquidation after a buyer couldn’t be found.
“That was a little bit of a different situation” than Pier 1, said Craig Kessler, chief investment officer and founder of Kessler Investment Group, a large holder of the company’s stock. “I don’t think Warren Buffett would have turned that around.”
A similar story unfolded with Fullbeauty Brands. Riesbeck became CFO in July of 2018, and a pre-arranged bankruptcy plan was announced just six months later. The company set a record when it got court restructuring approval in under 24 hours after it was able to garner widespread support from its stakeholders.
Besides shrinking the business, Riesbeck’s plan to save Pier 1 has yet to be fully laid out to investors. He’ll need to deal with about $300 million of loans, including almost $190 million maturing in 2021 that becomes a current liability four months from now. In a sign of investor skepticism, the loan trades for just 26 cents on the dollar, and the shares have plunged to $3.50 from $31 last February.
Bachelder, who was coming off a successful turnaround of fast-food chain Popeyes Louisiana Kitchen, aimed to pair cost cuts with a product revamp. That’s exactly what Kessler would like to see.
“It’s really about bringing back the curation of that unique product that they are known for bringing to the customer,” said Kessler, whose firm is among the largest Pier 1 shareholders after taking a stake last year. “That’s what I want to see.”
Pier 1’s breakthrough came in the pre-Internet age when the chain acted like an old-world emporium for the masses, offering goods from far-flung locales along with beanbag chairs, love beads and incense. Its founders included Charles Tandy, the entrepreneur behind Radio Shack. Peter Lynch, the legendary money manager, loved the stock, putting it on the map with retail investors.
Surging U.S. home ownership in the 1990s, combined with the trend toward larger dwellings, fuelled rapid growth. That ended in the mid-2000s amid online competition and what many viewed as a tired assortment of products.
“A lot of younger consumers think of Pier 1 as their parents’ store,” chimed one analyst in 2007.
Following the financial crisis, the company experienced a renaissance under former CEO Alex Smith, who turned Pier 1 around with a mix of cost cuts, new stores and investment in e-commerce. Shares surged from less than $4 in 2009 to more than $400 by 2013. The chain cruised for the next few years, but by the end of 2016 Smith was gone as a shift toward more discounting hurt profits, and ultimately the stock price.
Now the retailer is in a precarious position.
The company has to try to come up with an assortment and store layout that will win over customers in an era of intense competition from rivals like HomeGoods Inc. and Wayfair Inc., according to Poonam Goyal, a senior retail analyst at Bloomberg Intelligence.
“It’s gotten more risky since we owned it,” Kessler said. “And the trigger finger has gotten itchier.”