Following four consecutive quarters of declining sales, a CEO set to leave the company at the end of the year, and now contention from a key investor, Pier 1 Imports is in a rather difficult situation as the all-important holiday season is near.
In the wake of Alden Global Capital’s letter to Pier 1 Imports, requesting a reconstitution of Pier 1’s Board of Directors, will the company suffer at all in the brand loyalty department?
In its Oct. 14, 2016 letter to Terry London, Chairman of the Board of Directors at Pier 1 Imports, Alden Global Capital−which owns approximately 9.5% of the outstanding shares of Pier 1−outlines some serious concerns:
“We do not believe the current market price of Pier 1 fully reflects its intrinsic value, in large part due to the company’s deteriorating operating performance, history of poor capital allocation, and irresponsible executive compensation,” London wrote. “The purpose of this letter is not only to make our serious concerns explicit for the Board, but also to outline our views for fellow shareholders regarding why immediate and meaningful changes are required to begin rebuilding shareholder confidence.”
London added: “The company is at a critical juncture in light of the Sept. 7 announcement that CEO Alex Smith will step down at the end of the year and that there is a search currently underway for a new CEO. The company’s deteriorating operational performance, as further evidenced by the recent disappointing first half financial results, adds even greater urgency to the situation. Shareholder representation on the Board is imperative in order to ensure that the current CEO search and hiring process is properly overseen and that shareholders’ best interests are paramount in the boardroom.”
London points out that Alden Global Capital wants to work with Pier 1 Imports to reconstitute the Board and assist in the ongoing CEO search process.
“This letter would not have been necessary had you shown a willingness to work with us to address our concerns rather than defensively testing our resolve by adopting a Poison Pill,” London wrote. “We have identified several external candidates with the requisite industry experience, leadership skills, and track record of creating shareholder value who could ably serve as directors of Pier 1. We are confident the new CEO will benefit from a Board with fresh perspectives. Alden is also well-positioned to assist in the CEO selection process, drive strategy, and provide a thoughtful perspective on value enhancement at Pier 1.”
Three days later, Pier 1 Imports responded to Alden Global Capital’s letter.
“Pier 1 Imports values constructive input from investors and regularly engages in dialogue with its shareholders regarding strategy and performance, including five recent meetings and calls with Alden,” Pier 1 Imports’ letter says. “Nevertheless, Alden has demanded that the Board be immediately reconstituted to include multiple Alden designees, including its President Heath Freeman. This ultimatum, coupled with the threat to run a consent solicitation to replace the Board, is not constructive and could erode shareholder value by undermining the Company’s announced CEO search and disrupting its business in the holiday selling season. Pier 1 Imports has a highly qualified, diverse Board with significant retail experience which was reelected with greater than 98% approval by our shareholders at our annual meeting less than four months ago. Nonetheless, we are mindful of Alden’s significant investment and will continue to engage and attempt to work collaboratively with Alden and all our stockholders to help the Company achieve success and enhance value for all stockholders.”
Is this what Pier 1 Imports needs at this critical time of the retail season?
Doug Sutherland, Loyalty Specialist, Dynamics, offered his views to Loyalty360.
“Activist investors can generate a lot noise around the brand,” Sutherland said. “Unfortunately, not always good noise. It is surprising to demand the company’s management defocus on the must-win critical holiday season to address this noise. Arguably, what goes on in the boardroom is unlikely to impact or affect consumer spending or brand loyalty in the short term. That said, Pier 1’s poor fiscal performance over the past four quarters is troubling, and whether in October or January, management will need to take a very hard look at the next stage of evolution for the company, including how to engage its specific segment more meaningfully, as well as expand its traditional loyal base and envelop loyalty mechanics into campaigns to re-engage and re-ignite consumer interest/spending.”
Chirpify CEO Chris Teso said the Pier 1 situation stands in stark contrast to brands like Chick-fil-A, which is finding real success by modeling from the top-down how it wants everyone in the organization to be treated−most notably, the customer.
“The customer’s interaction stands to be negatively impacted as waves from a CEO replacement and challenge for the board ripple throughout the company,” Teso said. “That said, this can be a real pivot point where Pier 1 Imports can double down on loyalty engagement, ensuring that it is building a culture where every touch point – whether employee or technology driven – seeks to further customer engagement, participation, and loyalty with the brand. Indeed, as Pier1 Imports looks to grow its ecommerce sales, research has shown that the most engaged loyal customers shop more often, are less likely to shop with competitors, and are more apt to shop online. A concerted effort to embed engagement loyalty will help Pier 1 Imports retain and attain loyal customers, which at the end of the day, will help address the very issues raised in this situation in the first place.”