Pier 1 Juggernaut Faces Holiday Test : Retailing: It has been the fastest-growing home furnishings firm in the country since 1985. But its sales are off recently.

The rapid expansion of Pier 1 Imports Inc., which began five years ago when the company updated its ‘60s-style merchandise and look, is facing its first big sales test--a lackluster holiday season.

The serape and incense store has grown up and out, changing its image with an open layout and a merchandise mix that places greater emphasis on fashion and color.

Since 1985, Pier 1 has been the nation’s fastest-growing home furnishings retailer. The number of stores jumped to 554 from 265, sales doubled and profit tripled during that time.

But Pier 1’s sales fell in September for the first time since the face lift and expansion began. In October, sales at stores that have been open at least a year were off again--this time by 7.3%--and the company moved into the holiday retailing period with lower expectations.

“The economy is in an uncertain period. Certainly the Middle East (crisis) is affecting people buying things that Pier 1 sells,” said Marvin Girouard, president and chief operating officer. “We don’t sell needs. We sell wants--and that’s the first thing that people start being concerned about.”

Pier 1’s move to higher-priced merchandise has “made them more sensitive to the economy,” agreed Dan Wewer, an analyst for Robinson Humphrey in Atlanta. “They are now much more vulnerable.”

While conceding that this holiday season is “as uncertain as any we’ve gone into in recent years,” Girouard said, “our mix is appropriate. The stores are merchandised very, very well. We’re ready for Christmas.”

Company officials were cheered a little by sales after Thanksgiving, the busiest time for retailers. With 15% more stores than in the same period last year, Pier 1 said sales were 18% higher during the week that ended Nov. 24. The company said it didn’t have sales figures for just the stores open a year or more.

“They’re set up as well as a specialty retailer can be set up,” said analyst Dennis Van Zelfden of Rauscher Pierce in Dallas.

Pier 1’s growth has been successful enough that the company will be able to keep expanding, though at a slower pace, through the retailing slowdown, Girouard said.

“In some ways, no one is our competitor,” he said. “In some ways, everyone is--because we’re selling things that you buy with your discretionary dollar. What we have to do is be more accessible and available.”

Pier 1 opened 85 stores in the 1989 fiscal year ended Feb. 28 and will open 74 by the end of this fiscal year.

New-store building will slow during the next few years, but Girouard said Pier 1 is on target to reach $1 billion in sales by 1994 and have 1,000 stores by the year 2000.

The company earned $25.5 million on $516.9 million in sales during the 12 months ended Feb. 28. In the previous fiscal year, net income was $21.9 million and sales $414.6 million.

In its second quarter ended Sept. 1, Pier 1 netted $2.6 million on $149.6 million in sales. That was off 64% from year-ago earnings of $7.3 million on $134.9 million in sales.

“Since 1985, we’ve opened over 350 stores, and there’s only about eight or 10 of them that we might not open today,” Girouard said.

“What that rapid expansion gave us was some markets where we didn’t have much presence, and now we feel very well covered, in Los Angeles, Chicago, Boston, Dallas and Houston. Now we’re looking at single sites and regional shopping areas.”

Fort Worth entrepreneur Charles Tandy, who also started Tandy Corp. and Radio Shack, opened Pier 1’s first store near San Francisco in 1962. The Far East goods he sold at bargain prices caught on with the Bay Area’s flower children.

Tandy sold the chain in the early 1970s, and it went public shortly after.

The chain went through a lean period from 1975 to 1985, closing or relocating 175 stores.

It now is being approached by developers who want a Pier 1 store on their property, Girouard said.

About 40% of Pier 1’s merchandise mix changes each year, but the company has built strong relationships with suppliers, Girouard said.

“You don’t just show up in Afghanistan and place an order for 10,000 candlesticks--because you don’t know if they can ship,” he said. “So a lot of the big purchases are done with people that have proven who they are and what they can do.”

Girouard added that political changes in Eastern Europe and the Soviet Union may provide Pier 1 with even more suppliers.