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Pirch Retreats From Its Rapid Expansion

San Diego’s formerly fast-growing retailer Pirch recently announced that it was closing six of its 10 stores — all of them outside of California. But the abrupt downsizing came as the overall economy continues to be quite friendly to sellers of furniture and related home furnishings including several national chains now in the midst of local expansions.

Some experts chalk up Pirch’s retrenchment to a sputtering bid to expand, perhaps too fast nationally, and other internal operating factors.

Meanwhile, in the past five months alone, new locations were announced by the upscale Room & Board and Arhaus, both of which have stores opening soon at the Westfield UTC mall — the home base of Pirch. Also during that period, expansions were set in motion by West Elm (Solana Beach), Italian furniture maker Natuzzi (Mission Valley) and most recently Bassett Home Furnishings (La Jolla).

This growth is on top of local expansions made in recent years by San Diego-based stalwarts Jerome’s Furniture and Mor Furniture for Less, and La Mirada-based Living Spaces. Much of this activity was put in motion by post-recession economic improvements, including rising single-family home values, and is expected to continue — barring a significant jolt to the overall economy — as apartment dwellers fill thousands of new units coming online in places like downtown San Diego.

Despite a generally strong local and national housing economy, the eight-year-old, upscale-focused Pirch — founded by former CEO Jeffery Sears and Jim Stuart – apparently stumbled in its attempts to spread its brand nationwide, even after reporting sales of approximately $200 million in 2015.

Beyond a statement issued in mid-September, noting that its stores outside of California would be closing by month’s end, Pirch officials did not respond to requests for comment on the pullback, which will leave its stores operating in UTC, Rancho Mirage, Glendale and Costa Mesa.

“Pirch has made the strategic decision to refocus its footprint and pace of expansion,” the statement said. “Our California stores are performing well and profitable, and we remain focused on growth in this region.”

Lost in Translation?

While local retail experts said they were not in a position to speculate on the exact causes for Pirch’s cutback, one theorized that the company has struggled to extend its California success — based on design aesthetics, indoor-outdoor weather considerations and other elements specific to upscale buyers in the Golden State — to a nationwide audience.

“Sometimes a concept that’s very successful in California just doesn’t translate outside of the state, even if you locate in places with the right number of high-end consumers,” said Steve Avoyer, president and co-founder of Flocke & Avoyer Commercial Real Estate. The San Diego-based brokerage and management firm oversees sales, leasing and other operations at more than 100 client retail centers in San Diego County.

While there has recently been expansion of higher-end furnishing retailers in the local market, Avoyer noted that more growth is being seen among companies like Jerome’s and Mor Furniture, which generally garner more of the middle-income consumers and have recently been boosting their offerings of high-margin items like expensive mattresses and related bedding supplies.

These companies have also used their scale to boost in-house technologies, speed up delivery times and offer more consumer financing options, Avoyer said.

Furniture Theater

Pirch’s stores emphasize high-end furnishings and fixtures, presented in “vignettes” with full utility hookups where customers can try out or view live demonstrations of items such as kitchen appliances and bathroom showerheads. This puts the business in competition not only with furniture stores, for merchandise like patio furnishings and other indoor-outdoor design accessories, but also with upmarket fixture retailers like Restoration Hardware (which also has a UTC store), and on some items with the mid-priced do-it-yourself giants Home Depot and Lowe’s.

Mike Moser, a broker with San Diego-based Retail Insite, said the “superstore” format continues to be successful in the home furnishings business, particularly among the do-it-yourself crowd. He recently represented Atlanta-based Floor & Decor, which just opened its first local store off Interstate 15 in Carmel Mountain Ranch and continues to scout local and U.S. locations in the 70,000- to 80,000-square-foot range.

That company, which has about 80 U.S. stores and recently went public, is among several capitalizing on continued new housing construction and renovations, in a retail segment that has generally been resistant to many changes brought about by e-commerce.

“Most people when buying want to see, touch and feel the product,” Moser said. “They want to sit in the couch or chair, and they are somewhat resistant to purely online sales.”

The industry research firm IBISWorld Inc. recently reported that U.S. home furnishings stores are on track in 2017 to rack up $33.7 billion in revenue and $2.7 billion in profits. Those retailers experienced average annual sales growth of 3.5 percent during the past five years, and are projected to grow sales an additional 1.9 percent annually over the next five years.

“Housing starts are on the rise, and consumers and builders both outfit newly built homes with furniture,” IBISWorld analyst Taylor Palmer, said in an e-mail to San Diego Business Journal. “Growth in the housing market has been moderate, but so has the apartment rental industry, which also bolsters industry performance.”

Millennial Market

Palmer said 35-and-under millennials are more likely to rent than buy, and their purchasing power is growing. “Millennials with more money are purchasing furniture when they move from apartment to apartment, which has been a boon to the industry,” he added.

Pirch in recent years was lauded nationally in business media and retail circles, for a format that was seen as disruptive and potentially lucrative within the otherwise struggling U.S. shopping center industry. For instance, according to Bloomberg News, Pirch leaders estimated last fall that the company was generating more than $3,000 in annual sales per square foot at its nine stores.

That figure would put it on par with jeweler Tiffany & Co., the second most lucrative retailer in terms of sales per square foot. (According to a recent report from research firms CoStar Group and eMarketer, the most lucrative is Apple stores, which generate $5,546 per square foot. U.S. chain retail as a whole now generates on average $325 per square foot, down from $375 in the early 2000s).

Some national observers have noted that Pirch’s cuts likely stems more from internal operational and strategic factors rather than the overall housing economy. Writing recently for Forbes magazine’s website, contributor and market researcher Pamela Danziger offered theories including too-rapid store growth, which outpaced some vendors’ capacity to deliver certain high-end items to stores in a timely manner.

‘Showrooming’ Hurts

Other potential issues included a reliance on vendor rather than in-store personnel to make sales in showrooms, too much dependence on sales of big-ticket items rather than lower-priced accessories, and a tendency of some consumers to buy elsewhere after seeing products demonstrated at Pirch (aka “showrooming”). There’s also the fact that many of Pirch’s affluent customers are not do-it-yourselfers, preferring to leave many home improvement matters to designers and other contractors.

Another possible contributing factor, Danziger said, was the decision by the original founders last year to disengage from certain daily operations and hand the reins over to new CEO and President Andrea Dorigo, whose retail experience is in upscale clothing and eyewear (including stints at Brooks Brothers and Luxottica) rather than furnishings.

Started in 2009 as Fixtures Living, Pirch was recently in discussions with landlords to terminate leases in Chicago, Dallas, Atlanta and Paramus, New Jersey. It was evaluating options for its space in New York City’s SoHo neighborhood, where it opened in May 2016; the company’s 10th store, which opened earlier this year in Austin, Texas, had already been closed before the recent announcement.

Some observers have speculated that Pirch’s private equity owner, L Catterton, will now be seeking a buyer for the company.

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