Housing woes hurt home decor stores; Pier 1 (PIR) and Wal-Mart (WMT) should team up

According to The Associated Press, the home decor industry is the "latest casualty of the ongoing housing and mortgage lending bust".

The purchase of new home furnishings is an easy expenditure for consumers to put off -- if people are anxious about their mortgage, or disheartened that their home isn't appreciating in value like it was a few years ago, that old couch starts to look a lot better.

All of this makes Pier 1 Imports (NYSE: PIR) look like a tough bet. The stock rallied last week on an analyst upgrade, but continues to face sales and margin pressures, in part because of lower-price competitors like Wal-Mart (NYSE: WMT). The company is in the midst of an attempted turnaround but the combination of competitive pressures and an industry-wide slowdown that recently claimed Bombay could be too much for the company to handle.

In the most recent quarter, Pier 1 saw its sales decline 7%, and it's going to be hard to turn that around if the industry as a whole continues to sputter.

In June, I suggested that it might be time for Wal-Mart and Pier 1 to team up. if Pier 1 continues to struggle with sales and profitability, and Wal-Mart continues to struggle to reach the more upscale demographic Target (NYSE: TGT) has nailed, it's something that both parties might want to consider.