Dillards Company

Tradition is trying to catch up with the times at Dillard's. Sandwiched between retail giant  Macy's and discount chains, such as Kohl's, Dillard's is rethinking its strategy and trimming its store count. The department store chain operates about 300 locations (down from 330 in 2005) in about 30 states, covering the Sunbelt and the central US. Its stores cater to middle- and upper-middle-income women, selling name-brand and private-label merchandise with a focus on apparel and home furnishings. Women's apparel and accessories account for more than 35% sales. Founded in 1938 by William Dillard, family members, through the W. D. Company, control nearly all of the company's voting shares and run the company. Operations Beyond department stores, Dillard's owns CDI Contractors, a Little Rock, Arkansas-based construction firm that was started to build and remodel its stores. CDI, which accounts for only about 1% of Dillard's total sales, saw its sales decline by 31% in fiscal 2012. New under Dillard's umbrella is Arkansas-based Acumen Brands (acquired in 2012), the operator of a dozen online retailers, including scrubschopper.com (medical uniforms) and countryoutfitter.com (western wear). Dillard's hopes to use Acumen's acumen to improve its namesake e-commerce site and the dozen operated by Acumen. Dillard's owns more than three-quarters of its stores as well as most its distribution centers. Financial Analysis Dillard's posted a nearly 3% gain in retail sales in fiscal 2012 (ends January) vs. the prior year, while same-store sales climbed 4%, their strongest gain in years. Sales of shoes and cosmetics posted significant sales gains, while apparel posted more modest gains and the home and furniture category declined. In terms of profit growth Dillard's had an excellent year, with net income up about 158%. The uptick in retail sales followed an essentially flat comparison in fiscal 2011 and several lean years during the deep recession. Still, the $6.4 billion in total sales rung up in fiscal 2012 was well below the $7.8 billion Dillard's took in in fiscal 2007. Indeed in fiscal 2002 the department store chain enjoyed sales in excess of $8 billion. Strategy Along with the decline in sales, the company's store count has slipped as it shutters underperforming locations, including the last of its 16 home and furniture stores. Indeed, the schedule of store closings has accelerated in recent years as Dillard's tries to reduce operating expenses in a recessionary environment. After reducing its store count by an additional four locations in fiscal 2012, the company has no plans to open any new locations in the coming year. To reverse falling sales, the department store chain has moved "up market", positioning itself above Macy's and Belk and below high-end chains such as Nordstrom and Bloomingdale's. To attract more customers Dillard's is focusing on adding more fashion, much like J. C. Penney has done in recent years. The firm's new direction is inspired on the success of specialty stores with their edited displays or merchandise in boutique-like settings rather than an endless sea of apparel racks. New stores are smaller (averaging 170,000 sq. ft.) and located in open-air lifestyle centers rather than enclosed malls. Dillard's, which is averse to marking down merchandise but has been forced to discount by its lower-end competitors, hopes its move up market will stop the markdowns. Ownership Dillard's, Inc. Retirement Trust owns about 25% of the company's common stock.