The struggling chain and seven affiliated firms filed their Chapter 11 petitions on Monday in a bankruptcy court in Richmond, Va., with total assets listed as $426.6 million and $258.3 million in liabilities.
“We are moving ahead in this process with the support of the our lenders and are pleased with the initial interest as we engage in discussions with potential buyers,” Robert J. Riesbeck, CEO and chief financial officer, said.
Pier 1’s stores and online business continue to operate as usual. “We will continue to serve our customers regardless of how and where they shop with the style, value and selection of merchandise they want as we move through this process, and we are committed to working seamlessly with our vendors and partners,” Riesbeck said.
Most of the firm’s largest 30 unsecured creditors are trade suppliers who import merchandise from China, Vietnam, India. Aside from the top 30 unsecured creditors, total merchandise mix is sourced at 60 percent from China, 16 percent from India and 17 percent collectively from Vietnam, the U.S. and Indonesia, court documents said.
Pier Pier 1 has also commenced insolvency proceedings in Canada. Debt obligations total $400 million, comprised of a $187.3 million revolving credit facility due June 2, 2022, and a $189.0 million term loan facility due April 30, 2021.
Pier 1 has an agreement with the majority of its term loan lenders that allows it to pursue a court-supervised sale process, with the sale serving as the basis of its Chapter 11 reorganization plan. The current timeline calls for qualified binding bids to be submitted around March 23, subject to procedures approved by the bankruptcy court.
The company has secured a $256 million debtor-in-possession financing facility from Bank of America N.A., Wells Fargo National Association and Pathlight Capital LP. Pier 1 said the financing, once approved by a Virginia bankruptcy court, and combined with cash flow from operations, would “provide ample liquidity to support continued operations and the sale process” as company works through the Chapter 11 process.
The bankruptcy process would facilitate Pier 1’s closure of 450 stores, about 400 of which are either closed or in the process of being shuttered. Those closures are expected to be completed by March 31. All 65 Canadian stores will close as part of Pier 1’s bankruptcy proceedings in the country.
Over the years, the home goods chain has shuttered hundreds of doors. The company operated more than 1,000 doors across the U.S. and Canada, Riesbeck said in a bankruptcy court filing, and at the time of its Chapter 11 petition, Pier 1’s footprint spanned 858 stores in the U.S.
Riesbeck said the go-forward plan involves 540 stores averaging 8,000 square feet of retail selling space, with most located as freestanding units near shopping centers or malls.
“Pier 1 has a strong online platform and omnichannel platform, accounting for approximately 27 percent of overall sales,. The company has, however, struggled to evolve in the modern retail environment,” Riesbeck said, noting the company’s drop in net income from $108 million to about $11.6 million from fiscal years 2014 to 2018. The loss totaled $198.8 million in fiscal year 2019, he added.
Riesbeck, who joined Pier 1 in July as chief financial officer and was named CEO in November, is part of the new management team recruited to restructure the company’s operations.
Decorative accessories represented about 67 percent of Pier 1’s sales mix in 2019, with furniture representing the balance, Riesbeck said, noting the company’s return to its historic product mix and quality. Pier 1 first whittled down the number of SKUs it carried, and also shifted to a curated product mix with proprietary designs and higher quality, he said, adding that stores have been redesigned to illustrate a “design story” that customers “can bring into their own home.”
Pier 1 works with various vendors and logistics providers to ensure merchandise is up to the company’s customers’ demands and delivered on time, and that buying agents in overseas markets also help with product development and sampling, order management, product inspection and quality control, Riesbeck said. The new “End2End” program implemented in the past year requires about 54 weeks of lead time from the initial development of a style story to considering the merchandise mix, producing a sample line, executing a mock store walkthroughs, shipping orders, and preparing floor sets over a 12-week period.
The company also faced liquidity issues as financial troubles surfaced and certain supply chain vendors in China, Vietnam and Indonesia began demanding payment in full prior to delivery. And Riesbeck also noted that the company will likely face other potential inventory disruptions stemming from to the coronavirus outbreak in China.
Riesbeck said Pier 1 intends to file an “all weather” Chapter 11 plan by Feb. 24, which will either facilitate the sale of the company or the equitization of term loan indebtedness on a standalone basis. Term loan lenders have not made a decision yet, though Riesbeck confirmed they support a potential sale.
Some of the troubles plaguing the home goods chain stemmed from prior management’s “misguided effort” to adapt to the changing retail landscape by moving toward a mass-market strategy based on high volume, low price and lower-margin commodity items, Risebeck noted. And competition from online players including Amazon and Wayfair and in-store rivals such as Cost Plus World Markets, HomeGoods and Target also took a toll.
Pier 1’s struggles are part of a series of shifts in the retail landscape as retailers online and off are trying to figure out their best survival strategy. Wayfair last week said it was laying off 550 employees, or 3 percent of its workforce. And Macy’s is closing 125 doors as Kohl’s Corp. has reshuffled its management team and cut 250 positions as part of a corporate restructuring.
Pier 1 was founded in 1962 with a single store in San Mateo, Calif. By 1970, the company’s stock was publicly traded on the American Stock Exchange, and two years later the stock began trading on the New York Stock Exchange. In 1998, total company sales surpassed $1 billion, according to a court document, and by 2003, the retailer opened its 1,000th store in North America.
At the time of the petition, the company employed 17,000 in the U.S. and Canada. With the store closures and shutdown of its Canadian operations, Riesbeck expects that about 6,000 employees will lose their jobs as a result of the Chapter 11 cases.