Dillard's Old-Fashioned Retail Skills Propel the Chain to Market Heights

"One of the best-performing stocks of the past few years isn't a tech giant or a highflying startup. Instead, it is a family-run department-store chain that doesn't have a wide following on Wall Street.

Shares of Dillard's Inc. have soared more than 1,500% since April 2020. The company's market value is similar to that of Macy's Inc., even though Dillard's has less than one-third of Macy's annual revenue.

The Little Rock, Ark., retailer has about 280 stores, most of which are in the South, and is one of the few department-store chains still run by its founding family.

The chief executive and president -- both sons of the company's founder -- visit stores weekly and know down to the item what is selling best in each location, people who have worked with them said. They have an old-school shopkeeper mentality that combines smart merchandising with shrewd financial management, according to the people and analysts.

The Dillard family has instilled a sense of loyalty among staff, many of whom have been with the company for decades. Employees are encouraged to give customers personalized attention, which in turn keeps shoppers coming back, the people said.

Dillard's management has been criticized for not embracing changes. In some ways, that steadfastness has benefited the company. The retailer hasn't chased growth the way some of its peers did by opening hundreds of stores that later had to be closed.

It also didn't buy internet startups and resisted prodding from investors to generate cash by selling its real estate. Dillard's owns the majority of its stores, which bolsters its balance sheet by keeping lease payments and debt to a minimum.

Dillard's, with about $6.9 billion in annual sales, doesn't host quarterly conference calls like many large publicly traded companies. Members of the Dillard family rarely give interviews, and the company declined to make executives available for this article.

Company founder William Dillard honed his retail skills at his father's general store before studying at the University of Arkansas and later Columbia University. He opened his first store in 1938 and expanded the business during the mid-20th century mall boom while also snapping up smaller rivals. The company went public in 1969.

Mr. Dillard eventually handed stewardship of the company to his five children. His son William, known as B II, became CEO in 1998. Two other sons, Alex and Mike, serve as president and executive vice president, respectively. Daughters Drue Matheny and Denise Mahaffy also are executive officers. Mr. Dillard died in 2002.

All told, 11 family members work for the company, including Mr. Dillard II's son, known as B III, and Alex's three daughters.

Brothers William, 77 years old, and Alex, 73, have a reputation as tough negotiators who have an aversion to discounting merchandise, the people said. If a competing department store is selling a brand at a cheaper price, they will cut orders of that brand rather than match the lower price.

The Dillard family survived a 2008 push by activist investors to loosen its grip on the company, which it controls through ownership of most of the Class B stock that elects two-thirds of the directors. Dillard family members and employees participating in the company's 401(k) plan own more than half of the Class A shares that trade on the New York Stock Exchange.

The skyrocketing share price plus two special $15-a-share dividends paid in December 2021 and January 2023 have enriched rank-and-file employees and swelled the value of the family's holdings in the company. Stock buybacks have helped make the remaining shares more valuable.

The family has been accused at times of being insular and slow to adapt to changes in retailing, including the shift to e-commerce. Unlike many large retailers, Dillard's doesn't disclose how much of its revenue is derived from online sales.

"They aren't always as alert to new ideas," said Neil Saunders, managing director of research firm GlobalData. "What they lack in innovation, they make up for in traditional retail skills."

Before the Covid-19 pandemic, Dillard's suffered from the same habit of overbuying and discounting that plagued other retailers, the people said.

It thinned out its inventory during the pandemic and stayed lean as other chains overbought last year. One way Dillard's avoided that fate was by preaching the value of light inventories to its merchandise buyers.

The company's inventory is down 23.5% in the fiscal year that ended Jan. 28, compared with 2019. Meanwhile, profits totaled $891.6 million in the latest fiscal year, up more than 700% from the same period in 2019 -- far outpacing rivals.

Dillard's is facing challenges that have pressured other department-store chains, such as slowing demand from inflation-weary shoppers.

Total retail sales in the fourth quarter were flat from the same period a year earlier, while higher markdowns weighed on profit margins. The latest financial results have pressured the stock, which is down more than 11% since Dillard's reported earnings on Feb. 21. Some of its retail peers reported steeper declines in sales in the key holiday shopping period." [1]

1. Dillard's Old-Fashioned Retail Skills Propel the Chain to Market Heights
Kapner, Suzanne.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 06 Mar 2023: B.1.