Pier 1 filed for Chapter 11 bankruptcy and announced its plan to close 450 stores, end its Canadian operations, and pursue a sale of its remaining assets. The company's stock has always been a boom-and-bust play which inevitably flirted with bankruptcy when credit or industry conditions got tough. During the housing bust, its stock fell nearly 99% between the middle of 2007 to the bottom in March 2009. And it gained many multiples in the ensuing months and years as the company was able to evade bankruptcy and consumer spending bounced back.
Ironically, it was able to survive the housing bubble but unable to survive in a world dominated by online shopping and changing consumer tastes and habits. After all, this is an environment where retail spending and consumer confidence are at all-time highs. The housing market is also doing well. Basically, these are optimal macro conditions for a retailer like Pier 1.
The company's stock topped in early-2013 and since then has been in a steady descent. It was facing the same challenge that has been wrecking retailers in recent years - foot traffic has declined. The winners have been able to offset this through online channels, and the losers haven't.
In its recent quarter, sales declined by 13% to $358 million, and there was a loss of $59 million. Pier 1 has faced multiple, consecutive years and quarters of revenue decline. Competition has intensified from Amazon
More Retail Carnage
More retail bankruptcies should be expected in the coming months and years as the same dynamics that squeezed Pier 1 will hurt other retailers unable to make the shift to online shopping. One outcome of online business is that there are a few, big winners due to economies of scale. This same pattern is playing out in online retail as well.
Another dynamic that hurt Pier 1 is the squeezing out of the middle class. Companies that cater to the high-end or the low-end are thriving while those focused on the middle are struggling which tracks with the growing trend of "haves" and "have-nots" in most of the developed world.
Three more stocks to watch that are affected by both these dynamics are Macy's
