Pier Imports and Bed Bath and Beyond - Case Study Example

Comparison of Pier Imports, Inc. and Bed Bath and Beyond, Inc INTRODUCTION Pier Imports, Inc. and Bed Bath and Beyond, Inc. are two competitive companies operating in the United States and beyond. Bed Bath and Beyond, Inc., founded in 1971, and operates in Canada, United States, as well as, World Market, Christmas Tree Shops, Harmon Face Values, BUY BUY BABY, and Cost plus World Market. The company is a joint venture partner operating retail stores in Mexico. Bed Bath and Beyond, Inc. sells a wide range of home furnishings and domestics merchandise. The company owns Linen Holdings through which it distributes a variety of amenities, textile products, and other products to consumers in cruise line, hospitality, healthcare, food services, and other industries. The domestic merchandise that the company sells includes bath items, bed linens, and kitchen textiles. Bed Bath and Beyond, Inc. operates in two segments: Institutional Sales and North America Retail. Home furnishings include tabletop items, basic house ware, kitchen items, consumables, general home furnishings, and some juvenile products. Bed Bath and Beyond, Inc. is the country’s number one superstore domestic retailer operating over 10000 Bed Bath and Beyond, Inc. stores throughout America, Canada, and Puerto Rico. Pier 1 Imports, Inc., founded in 1986, operated over 1,072 stores in Mexico, Canada and the United States. The company opened, in fiscal 2014 years alone, 27 new Pier 1 Imports stores, most of which were relocations. Pier 1 Imports, Inc. deals with imported home décor and furnishings, specifically, furniture, decorative accessories, table-top items, and seasonal décor. The company’s logo is iconic with a quirky image. The company introduced children’s furniture and accessories, Pier 1 Kids, in the United States, but was disbanded later in 2007. Pier 1 Imports, Inc. owned a chain of home-décor retailers in the United Kingdom, but later sold to Palli Limited, an Iceland-based Lagerinn EHF subsidiary. Pier 1 Imports, Inc. merchandise is composed of home items and furnishings including accessories such as vases, candles, hand-curved armoires, full-sized upholstered, electric wall décor, picture frames, and large-scale vases. The company items are imported, manufactured in collaboration with foreign designers, or created by the company’s Product and Trend Development Team. Pier 1 Imports, Inc. has been a corporate partner of the UNICEF Fund in the United States since 1985. COMPANY SPECIFIC FOCUS Bed Bath and Beyond, Inc Bed Bath and Beyond, Inc. focuses on customer satisfaction. The company’s objective is to be the first choice of customers for services and products in the merchandise categories offered in the company’s operating markets. The company’s strategy is to achieve this objective via excellent customer care and service, everyday low prices, extensive depth and breadth of assortment, and the introduction of new merchandise offerings, which are supported by the increasing improvement and development of the company infrastructure. Bed Bath and Beyond, Inc. substantially purchases all its merchandise in the United States. The majority originate from domestic sources and the deficit from importers. A small amount of the merchandise of the company comes from overseas sources. Bed Bath and Beyond, Inc. is a specialty stores dealing with mid-ranged domestic merchandise in the sector of retail and lifestyle. Bed Bath and Beyond, Inc. operates under the slogan “Beyond any store of its kind.” The company targets middle-income households and families, including young girls and housewives from the urban upper middle class. It positions itself as high-quality goods for the bathroom and bedroom. On conducting a SWOT analysis of the company, Bed Bath and Beyond, Inc. emerges to have several strengths and opportunities that puts it on top of the competition in the industry. However, the company also experiences threats and weaknesses that pull the profit margin to the ground. The Bed Bath and Beyond, Inc. have a number of strengths that provides competitive advantage against the competitors. The company is one of the companies listed in the NASDAQ-100 Index and S & P 500 and Global 1200 Indices. Bed Bath and Beyond, Inc. is mentioned among the Forbes 2000 and the Fortune 500. These strengths give the company a great competitive edge in the market. Many customers want to be associated with their products due to their outstanding performance which is recognized by both Forbes and Fortune. Bed Bath and Beyond, Inc. also offers various customer care and services such as easy return which encourages buyers to go for their products with confidence and positive attitude. Besides customer care services, the company provide free shipping for customers. This is a positive company identity to the customers who want to receive after sale services when they buy items from long distance companies. Nevertheless, Bed Bath and Beyond, Inc. boast of employee strength of about 50,000. These employees provide excellent services to the customers and limits delays and waiting time to receive services or pay for the items. Bed Bath and Beyond, Inc. also faces weaknesses in its operations. The company is witnessing declining operating margins, which is causing great concerns among the stakeholders and employees. Many shareholders have expressed their concerns over the declining margins of operations as a deterrent to investments. This is a serious weakness that the company continues to battle in fighting its competitors. Another weakness is the company’s geographic concentration. The company customers are geographically concentrated in the United States and Canada. Many other branches face cut-throat competition the company competitors leading to lower margins. The branches of the company are also concentrated in few urban cities, leaving out a huge number of customers from reaching the company items and merchandise. Besides the weakness that Bed Bath and Beyond, Inc. face, the company has a number of opportunities. The company acquired many other brands in the industry. Bed Bath and Beyond, Inc. enjoys the opportunities for expansion, which has been seen in its expansion plans in Canada and internationally. The increasing online retailing in the United States and across the world give Bed Bath and Beyond, Inc. the opportunity to reach a wide coverage of customers who are situated in long distances away from the company. Online retailing has also made the work of company employees easy in terms of point contact sales. The company also reduces its cost of employing many people because many services are now conducted online. Bed Bath and Beyond, Inc. also face threats in the industry like all other competitors. The United States is currently experiencing rising wages, and many household consumers are diverting their income to more basic needs. The company targets middle-income families, and rising wages translate to the loss of some of the company’s target group. The company’s platform, Amazon’s casa.com is also overblown, creating a huge threat to the company. Pacific Linens and Luxury Linens are also posing a threat to the attempts of Bed Bath and Beyond, Inc. to venture into new markets. This leaves the company with few market option, but stiff competition in the industry with other competitive companies such as Pier 1 Imports, Crate and Barrel, and Williams Sonoma. Pier 1 Imports Inc Pier 1 Imports, Inc., just like Bed Bath and Beyond, Inc., seeks to achieve full customer satisfaction. The industry faces a stiff competition and every company wants to be the customers’ choice in the merchandise that is offered in the industry market. Pier 1 Imports, Inc. wants to catch something every time when shoppers fish for home décor. The company provides over 6,000 items that are imported from over 50 countries through its 1,072 stores across North America. Pier 1 Imports, Inc. offers a broad selection of outdoor and indoor furniture, baskets, lamps, ceramics, vases, candles, dinnerware, and other home décor accessories. The company allows the consumers to order and reserve items online as a strategy to cover a wide customer base. Pier 1 Imports, Inc. specializes in decorative retailing of gifts and furnishings and related items. The company attracts its customers with its wide item categories such as Holidays and Seasons, Home Décor and Accents, Occasions and Gifts, Candles and Fragrance, Furniture and Living, and Dining and Entertainment. Pier 1 Imports, Inc. offers its customers decorative accessories as already mentioned above. With the company’s numerous stores in Canada and the United States, Pier 1 Imports, Inc. seeks to achieve higher margins in the market, and effective competition in the industry. A SWOT analysis of the company illustrates the strengths and opportunities that Pier 1 Imports, Inc. enjoys, as well as company weaknesses and threats. Pier 1 Imports, Inc. derives its competitive advantage from its strengths. Some of the company’s known strengths include its existing distribution networks, large domestic market, monetary assistance from the government, and the company’s reduced cost of labor. Pier 1 Imports, Inc. has a wide distribution network that allows its products and merchandise to reach its customers. The distribution networks also give the company the strength of importations. The government also provides monetary aid to the company in import values. This puts the company an inch higher in the competitive edge and market. The domestic market of Pier 1 Imports, Inc. is also very large allowing the company to cover a wide customer base. Pier 1 Imports, Inc. operates under reduced labor costs which eventually cuts the productions, importation, and distribution costs for the company. There are a number of weaknesses that Pier 1 Imports, Inc. faces within the internal environment. The company has registered, reported low productivity, too much taxation, high costs, low research and development, lack of brands, and small business impact. These weaknesses hinder the company from effectively competing with its peers. For example, when the company operates under high costs and experiences too much taxation, the margins are likely to decline. Competing without a brand is also a negative aspect of business, and with the lack of enough research and development, Pier 1 Imports, Inc. is likely to operate in losses, and lose investments. Pier 1 Imports, Inc. boasts of a number of opportunities in the industry that has led to his notable profit margins. The company has a number of new markets with an ever growing demand for products. The company also has the opportunity to import new products and services because of the growing economy in both United States and Canada. These opportunities put Pier 1 Imports, Inc. high in the industry, and with the monetary aid from the government, it is likely to compete effectively in the industry market. Pier 1 Imports, Inc. faces a number of threats. These threats include tax changes, external business risks, low cash flow, rising material costs, and general increase in costs. These threats are deterrence to the company operations and completion. With many competitive peers such as Bed Bath and Beyond, Crate and Barrel, and Williams Sonoma, Pier 1 Imports must capitalize on its strengths and opportunities in order to compete effectively in the industry. SUMMARY FINANCIAL STATEMENTS Pier 1 Imports Inc Financial Ratios (Values in 000’s) Period Ending 3/1/2014 3/2/2013 2/25/2012 Liquidity Ratios Current Ratio 217% 266% 265% Quick Ratio 75% 122% 134% Cash Ratio 48% 93% 117% Profitability Ratios Gross Margin 42% 44% 42% Operating Margin 10% 12% 10% Pre-Tax Margin 10% 12% 11% Profit Margin 6% 8% 11% Pre-Tax ROE 39% 37% 33% After Tax ROE 24% 24% 34% Bed Bath and Beyond, Inc Financial Ratios (Values in 000’s) Period Ending 3/1/2014 3/2/2013 2/25/2012 Liquidity Ratios Current Ratio 207% 237% 309% Quick Ratio 67% 86% 155% Cash Ratio 47% 62% 131% Profitability Ratios Gross Margin 40% 40% 41% Operating Margin 14% 15% 17% Pre-Tax Margin 14% 15% 17% Profit Margin 9% 10% 10% Pre-Tax ROE 41% 40% 40% After Tax ROE 26% 25% 25% FINANCIAL ANALYSIS COMMENTARY Profitability ratios measure the ability of the company to generate earnings relative to assets, sales and equity. The ratios examine the company’s ability to generate earnings, profits, and cash flows relative to some metric, normally the invested amount. In addition, the ratios demonstrate how the company profitability is being managed. Higher profitability ratio values means that the firm is performing well and is good in generating revenue, profits and cash flows. As seen in the financial ratios above, Bed Bath and Beyond, Inc. appear to have higher profitability rations than Pier 1 Imports, Inc. save for the gross margin for the three years. This means that Bed Bath and Beyond, Inc. perform well in terms of profits, revenue, and cash flows. This can be attributed to the strengths and opportunities of the company as already discussed in the earlier sections of this paper. Liquidity ratios measure the ability of the company to meet its short-term debt obligations. They measure the company’s ability to pay off its liabilities in the short-term when they fall due. Both Bed Bath and Beyond, Inc. and Pier 1 Imports, Inc. settle their short-term debt obligations because their current ratios are more than one. However, Pier 1 Imports, Inc. has a higher current ratio of 217% compared to the 207% of Bed Bath and Beyond, Inc. This Pier 1 Imports, Inc. settles its debts faster than Bed Bath and Beyond, Inc. Bed Bath and Beyond, Inc. appear to have higher profitability ratios meaning that it makes higher profits. Pier 1 Imports, Inc. has higher liquidity ratios, meaning that it settles both its long-term and short-term obligations faster that Bed Bath and Beyond, Inc. Based on the financial ratios, the two companies appear to have a fluctuating financials. Both the companies had higher liquidity and profitability ratios three years ago (2012) than they do now (2014). The general trend appears to be declining in the ratios. However, some ratios such as pre-tax return on equity (ROE) appear to be higher in 2014 than it was in 2012. The rest of the ratios, both liquidity and profitability, have general declined. It can, therefore, be inferred that both Bed Bath and Beyond, Inc. and Pier 1 Imports, Inc. performed better three years ago (2012) than they do now in (2014). CONCLUSION From the prospective of a common stock owner, I think Bed Bath and Beyond, Inc. is positioned to provide higher financial rewards, combination of dividend and capital appreciation, than Pier 1 Imports, Inc. over the next five years. This is because of the evident trend in ratio appreciations. For example, let us look at the profitability ratios. The trend of operating margin from 2012 to 2014 moved from 17% to 15%, and to 14% in the case of Bed Bath and Beyond, Inc. This indicates a possible increase or decrease by one percent. This may not be good enough. However, the operating margin in the case of Pier 1 Imports, Inc. moved, from 2012 to 2014, from 10% to 12%, and to 10%. This infers a possible decrease with double digits. Pier 1 Imports, Inc. has a double digit fluctuation of operating margin which may not be feasible for Common stock owners. The same trend applies to profit margin in both the companies. When we look at the return on equity (ROE), the fluctuation is the same. Bed Bath and Beyond, Inc. had a steady ratio from 2012 to 2013, and increased in 2013 by one percent: 25%, 25%, and 26% respectively. This is an indicator of possible increase in the subsequent years. However, in the case of Pier 1 Imports, Inc., the return on equity (ROE) was very high in 2012 (34%), and experienced a sharp decline in 2013 and 2014 at (24%). This is a possible indication of further drop by 10%. Therefore, it is not feasible for common stock owner in terms of financial rewards. Therefore, Bed Bath and Beyond, Inc. is positioned to provide higher financial rewards, combination of dividend and capital appreciation, than Pier 1 Imports, Inc. over the next five years. Works Cited "Bed Bath & Beyond Inc. Reports Results for Fiscal First Quarter." PR NewswireJun 25 2014. ProQuest. Web. 5 Dec. 2014 Pier 1 imports, inc. : Retailing - company profile, SWOT & financial report. (2014). (). Basingstoke: Progressive Digital Media. Retail Home Furniture, Furnishings and Equipment Stores; Bed Bath & Beyond Inc. Files SEC Form 10-Q, Quarterly Report Sections 13 Or 15(D)] (Jul. 10, 2013)." Economics Week (2013) http://www.pier1.com/ http://www.bedbathandbeyond.com/ http://www.nasdaq.com/symbol/bbby/financials?query=cash-flow#ixzz3L1hBldLm http://www.nasdaq.com/symbol/pir/financials?query=cash-flow http://www.nasdaq.com/symbol/bbby/financials?query=cash-flow Read More