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TROUBLED HOME DECOR

Home furnishings chains must adapt to baby boomer tastes, experts say

By Dees Stribling

Last year was hard on home decor retailers. If consumers did not take a pass on updating completely, they often chose to buy their candleholders, decorative pillows, furniture covers, lamps, mirrors, throw rugs, wall art and whatnot somewhere other than a decor specialty store. “It’s definitely a tough time overall for the home decor business,” said C. Britt Beemer, chairman and founder of America’s Research Group, a Charleston, S.C.-based consumer behavior consultant firm. And for the major “exotic look” chains — Bombay Company, Cost Plus and Pier 1 Imports — times have been particularly tough. These three, whose merchandise varies considerably but whose emphasis is on evoking the looks of other times and other places around the world, have all posted disappointing returns.

Fort Worth, Texas-based Pier 1, the largest of the group, is in many ways the granddaddy of exotic home decor in North America. It was operating for decades before East Asian imports became commonplace. Currently, Pier 1 operates about 1,200 stores in the U.S., Canada and Mexico.

For the fiscal third quarter, ended Nov. 25, Pier 1’s total sales fell 11.8 percent year on year, to $402.7 million. Same-store sales fell too, meanwhile, down 12.9 percent. The picture for the first nine months was little better, with total sales off 9.5 percent year on year, and same-store sales down 11.6 percent. At press time Pier 1 was alone among the three in reporting sales for the important month of December, but scant comfort there too: Same-store sales were off 10.9 percent versus December 2005.

Bombay, like Pier 1, is based in Fort Worth, though it offers a different take on exoticism. The 450-store chain focuses on furnishings and accents reminiscent of the heyday of the British Empire. It, too, has posted disappointing numbers. Fiscal third-quarter revenues came in at $108.2 million, down 15.5 percent year on year. Same-store sales dropped by exactly the same amount over the quarter, which ended in October. Further, Bombay suffered year-on-year revenue and same-store sales declines for the first nine months of the year, 7.9 percent and 6.5 percent, respectively.

Oakland, Calif.-based Cost Plus, which offers imported items and operates about 280 stores under the World Market and Cost Plus World Market brands, recorded the trio’s best numbers. For its fiscal third quarter, ended Oct. 28, the company’s total revenue rose 7.3 percent over the year-ago quarter, to $215.4 million. Same-store sales, meanwhile, slipped 1.3 percent. Total revenue for the nine-month period was $643.6 million, up 6.7 percent over the comparable period, but same-store sales slid 2.9 percent.

One explanation for these chains’ struggles is pressure from the less specialized retail behemoths that are everyone’s competitors: Wal-Mart and Target. Target, for one, has made a concerted effort to offer exotic home decor through its Global Bazaar, the post-holiday-season offerings it rolled out in 2005. Though Global Bazaar has reportedly fallen short of expectations for Target, it nevertheless spells trouble for more-specialized retailers.

And yet the problem could be even more fundamental, something affecting the overall home decor segment. To judge from a survey done last fall by Columbus, Ohio-based Retail Forward, most people care little for decorating. Of the 4,000 respondents, just 38 percent indicated that they enjoy this activity, mostly young women between 25 and 34. Some 45.3 percent of respondents between 45 and 54 said they “enjoy spending time on home decorating,” but this drops off among older groups. Only 38 percent of those between 55 and 64, typically empty nesters with greater resources to devote to such pastimes, responded affirmatively to that question, while the number among those 65 and over was only 26.7 percent.

So home decor, it seems, loses luster as people age. Aging is what we all do, of course, and no one is likely ever to reverse the trend. So a key question for retailers is whether this age-related disinclination to decorate will remain true for the baby boom generation, which is quickly approaching its senior years. In the popular imagination, baby boomers do things differently than previous generations, but that may be wishful thinking when it comes to home decor buying habits.

The trouble might also be less tangible than either competition or demographics. “A part of the problem is that there hasn’t been a look that’s caught on recently,” said Beemer. “It’s hard to define, but there has to be a look that excites buyers. Retailers are trying, but they’ve been missing it.” And even that, he says, is only part of it. “Over the last five years or so, there have been a number of hot decor trends, and some retailers have done well with them,” Beemer said. “It’s a case of being hot for a little while, then off-trend for quite a while longer.”

Then there is the connection that home decor has with the home furniture business. Some of this is simple overlap in that home decor stores often sell some furniture, but the link goes deeper. People who outfit a room or a house with new furniture are very likely to want the other items to complete the effect. “I’ve never seen the home decor business good unless furniture sales have been strong, or vice versa,” said Beemer. “And lately, times haven’t been stellar for furniture sales.”

Bombay, Cost Plus and Pier 1 have yet to find the elusive formula to improve their sales, though they are struggling to do so. All three have been employing various management and financial strategies in an effort to turn things around, and Pier 1 is even the target of a possible acquisition from overseas. The company is known to be in talks with Lagerinn, an Icelandic home furnishings retailer.

Pier 1 sold its private-label credit card operations for $155 million last summer and its 40-store U.K. subsidiary, Pier Retail Group, for about $15 million last March. In October, citing short-term liquidity needs, Pier 1 eliminated its 10-cents-a-share quarterly dividend. “During the third quarter we continued to face soft customer demand in the home furnishings market,” said Marvin J. Girouard, Pier 1’s chairman and CEO, during a conference call in December. “The sector continues to battle for a share of consumers’ discretionary income.” Wide-ranging change is a virtual certainty for the company this year. Besides the acquisition possibilities, Girouard will be retiring soon.

During Bombay’s conference call in November, its chief executive blamed market conditions combined with management missteps as factors in the company’s poor showing. “Our sector is in the midst of a very difficult market, and our numbers reflected that,” said David B. Steward, president and CEO. “We added to the problem in the third quarter by executing an overly zealous inventory-reduction program [that cut] inventories severely, and without a focus on protecting key product lines. But we know what did not work, and we can plan and execute better in 2007.” Steward is relatively new to the job, having joined Bombay last summer following a considerable stint as head of Blockbuster Canada in which he turned that company around. Among other new initiatives on his watch, Bombay is converting space in its stores from the lackluster BombayKIDS concept to core products. During the fiscal third quarter, 23 stores were thus converted.

Cost Plus may take its cue going forward from some surprise results late last year. The chain put an increased emphasis on food and the like in its exotic-imports selection, and consumers responded, said CEO Barry Feld during an earnings call. Feld lauded the flexibility of consumables and their ability to generate more frequent customer visits. A combination of consumables, decor and furnishings appears to be a winning mix, he said.

This may be food for thought for Cost Plus’ rivals.