netrashetty
Netra Shetty
Dillard's (NYSE: DDS) also known as Dillard's, Inc., based in Little Rock, Arkansas, is a department store chain in the United States, with 330 stores in 29 states.[1] Its locations are concentrated in Texas and Florida; with a major presence in other states including Arizona, Iowa, Colorado, Wyoming, Kansas, Missouri, Alabama, Georgia, Tennessee, Oklahoma, Mississippi, Louisiana, Nebraska, Nevada, Utah, North Carolina, Virginia, Idaho, South Carolina, Kentucky, Indiana, Ohio, and Illinois. Dillard's also maintains a minor footprint in California, and Montana.
Dillard's carries brands such as Chanel, Clinique, DKNY, Dior, Dolce & Gabbana, Jones New York, Levi's, and Ralph Lauren.
Dillard’s (NYSE
DS) operates a chain of department stores across the U.S., with 309 stores open nationwide as of January 2010. [1] Dillard's targets middle- and upper-class consumers with premium-priced branded and private label clothing, cosmetics, accessories and home goods. Dillard's $6.1 billion of sales in 2009[2] place it well behind its national department store competitors J.C. Penney (JCP) and Macy's Inc. (M) which earned $17.6 billion and $23.5 billion in 2009 sales respectively.[3][4]
Since the beginning of the U.S. recession,[5] retailers have suffered from declining consumer spending on non-necessities, and Dillard's has been no exception. Dillard's net sales fell 11%[2] and same store sales declined 10% in 2009.[6] Dillard's has fared worse than lower-priced department stores like Kohl's (KSS), which had a 0.4% increase in net sales in 2009[7] and discounters like Target (TGT), which had a 0.6% increase in net sales in 2009, [8] because price conscious consumers flocked to lower priced stores in order to save money.
Contents
1 Company Overview
1.1 Business Segments
1.2 Divestment of Credit Card Business
2 Business Growth
2.1 FY2009 (ended January 30, 2010)[2]
2.2 Q1 2010 (ended May 1, 2010)[14]
2.3 Q2 2010 (ended July 31, 2010)[15]
2.4 Q3 2010 (ended October 30, 2010)[16]
3 Trends and Forces
3.1 Dillard's Faces Slow Recovery from Economic Downturn
3.2 Growing Dillard's Exclusive and Private Brands
3.3 Higher Raw Materials Costs May Force An Increase In Clothing Prices
3.4 Department Store Migration to Off-Mall Locations
4 Competition
5 References
Dillard's offers its own exclusive and private label brands alongside merchandise from branded manufacturers, which represented approximately 23.8% of total sales in 2009.[9] These brands can drive higher profit margins, so Dillard's is introducing new lines to grow the penetration of these private label products. Growing these brands is key to Dillard's competitiveness with its larger competitors, such as Macy's Inc. (M) and J.C. Penney (JCP). However, Dillard's lags behind larger and smaller competitors by the fact that all of the company's 309 stores are located in malls [10]whereas those of its competitors have several off-mall locations -- Dillard's risks losing market share as more consumers shift to shopping at off-mall locations.[11]
Company Overview
Dillard’s operates mall-based department stores and an e-commerce site in the United States that sell high-priced branded and private label merchandise. The company earned $6.1 billion in total revenues in 2009, an 11% decrease from sales in 2008.[2]
Dillard's stores and e-commerce site carry a variety of clothing, accessories and home goods. The company's merchandise offerings include products from premium branded manufacturers, such as Guess? (GES) and Polo Ralph Lauren (RL), in addition to exclusive and private label brands that Dillard's wholly owns or co-owns with outside partners, such as the Roundtree & Yorke and Antonio Melani brands. These brands represented 23.8% of Dillard's net sales in 2009.[9] Dillard's primary customers are women, typically in the middle- and upper-class. Consequently Dillard's bestselling product segment in 2009 was Ladies' Apparel and Accesories, which accounted for 36% of total sales (51% if including Cosmetics sales as well).[12]
Business Segments
Dillard's operates under six different business segments:[12]
Cosmetics (15% of net sales)
Ladies’ apparel and accessories (36% of net sales)
Juniors’ and children’s apparel (8% of net sales)
Men’s apparel and accessories (17% of net sales)
Shoes (14% of net sales)
Home and furniture (7% of net sales)
The company also has a small construction segment which accounts for 3% of net sales.
Divestment of Credit Card Business
Until 2004, Dillard's issued a private credit card, which could only be used at Dillard’s. The company sold its private credit card business to GE Consumer Finance (“GE”) for $1.25 billion in August 2004.[13]In connection with the agreement, Dillard’s and General Electric Company (GE) entered into a long-term marketing and servicing partnership whereby GE owns the outstanding account and any new accounts opened by Dillard's customers. In return, Dillard’s receives ongoing payments from GE for charges made to these credit cards. The sale of this unit allows Dillard’s to continue serving its customers with the private credit card while utilizing GE's operational and marketing capabilities.
Business Growth
FY2009 (ended January 30, 2010)[2]
Dillard's incurred a net gain of $68 million in 2009, compared to its $240 million net loss in 2008. The net gain did not come from higher sales, but rather a in improvement in gross margin as the company benefited from cost control initiatives such as improvements in inventory management and the closing of 6 under-performing stores.
Net sales were $6.1 billion in 2009, down 11% from net sales of $6.9 billion last year and 15% from net sales of $7.2 billion in 2007. The company attributes the significant decline in net sales to the recessionary environment. Dillard's sales were hurt as its target consumer market of middle-to-upper-class shoppers switched to discounted retailers to cut down discretionary spending.
Comparable store sales decreased by 10% during 2009, with the most notable declines in the apparel and home goods categories.
As of January 2010, the company operated 309 stores, a net decrease of 6 stores compared to 2008.
Operating profit for was $84 million, a $460 million improvement from the operating loss of $380 million during the previous fiscal year. Operating margin was 1.4% of net sales.
Q4 - net income was $80 million for the quarter, an improvement over the $150 million net loss for the quarter in 2008. However, net sales were down 10% from the previous year, showing that the company was improving its margin in order to make a profit.
Q3 - Dillard's net income was $8.0 million for the quarter. This was better than the previous-year fiscal quarter, in which there was a net loss of $56.0 million. Despite having 10% lower net revenues and a 9% decrease in same-store sales, the company was able to reduce its inventory by $490 million or 22% and decrease SG&A expenses by 290 bps.
Q2 - The company had a net loss of $26 million, an improvement over the net loss of $38 million the previous year. Net sales were also down 12%.
Q1 - Net income tripled to $7.6 million for the quarter. Net sales declined 12%.
Q1 2010 (ended May 1, 2010)[14]
Dillard's first quarter net income was $48.8 million, an six fold increase from net sales of $7.7 million a year earlier. The growth in earnings was not due to higher sales but rather to lower expenses and cost saving strategies.
Net revenue for the quarter was $1.48 billion, down 1.5% from net revenue of $1.51 billion a year ago. The company attributes the weaker weaker numbers to its construction business, CDI Contractors. Excluding the effects from CDI, net merchandise sales actually grew 1%. In addition, comparable store sales increased 2% for the quarter.
Cost of sales declined 6.6% and SG&A expenses declined 5% due to cost control measures and store closures.
Dillard's opened two stores during the quarter and finished with a total of 299 Dillard's stores and 12 clearance stores.
Q2 2010 (ended July 31, 2010)[15]
Dillard's second quarter net income was $6.8 million and increase over the net loss of $26.7 million that occurred in the previous year period. The company benefited from a $2.6 million gain from the sale of a building and $2 million from an income tax benefit.
Net revenue fell 2.7% to $1.39 billion and same-store sales remained flat. Merchandise sales fell 1% for the period.
Dillard's merchandise gross margin increased 270bps. Store inventory declined 6%.
The company closed one store during the quarter and finished with 296 stores.
Q3 2010 (ended October 30, 2010)[16]
Dillard's third quarter net income increased 80% to $14.4 million. The company attributed the strong gain to improved margins, reduced expenses, and lower inventory.
Despite the gains in net income, net sales fell 1% to $1.37 billion.
Advertising and SG&A expenses decreased by $3.5 million to $398.5 million during the quarter.
Inventory at stores open at least a year fell 2%.
Trends and Forces
Dillard's Faces Slow Recovery from Economic Downturn
The sluggish economy has hurt Dillard's performance just as it has hurt most other department stores. Stores with higher-priced goods that target upper-class customers, such as Dillard's, struggled through the recession as shoppers cut back on their spending by trading down to lower-priced merchandise. As a result, Dillard's experienced significant declines in sales, with net sales decreasing 5.2% and same store sales dropping 7% in FY08.[17] Lower-priced stores, such as Kohl's (KSS) fared better than Dillard's as shoppers trade down and look for deals. Kohl's net sales only fell 0.5% in FY08.[18] During the period, Dillard's performed slightly more effectively than luxury department stores, such as Nordstrom (JWN) and Saks (SKS), which experienced drops in same store sales at 9% and 6.1% in FY08, respectively. [19][20]
However, in 2009 the economy started to recover[21] and has continued into 2010. The strengthening economy means that consumers will be more willing to spend money on discretionary goods and will put more emphasis on quality rather than price. However the recovery of consumer spending and confidence will be slow to reach the level it was at before the recession. In FY2009, Dillard's net sales and comparable store sales declined by 11% and 10% respectively,[2] indicating that consumers still had not transitioned to buying the high priced items that Dillard's sells. This pattern changed somewhat in 2010 when in the first quarter, net income increased six times its 2009 levels, but due to cost saving measures rather than increased sales (sales fell 1.5% for the period).[14] This trend has continued into Q2 2010 as the company's net income increased due to the sale of a building and an income tax benefit, despite net sales falling 2.7%.[15]
Growing Dillard's Exclusive and Private Brands
Department stores are increasingly seeking to distinguish themselves and earn higher profit margins by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain; one exclusive brand at Dillard's is the Antonio Melani line that can only be purchased online or at Dillard's stores. Private label brands are produced by wholesalers, but sold under the brand name of the retailer. Exclusive brands such as Gianni Bini and Roundtree & Yourke, can help draw customers into Dillard's stores, as the products can only be found at Dillard's. Dillard's own private label products are typically priced lower than branded merchandise, but have a higher profit margin for Dillard's as the retailer is able to receive the good at a lower cost by avoiding branded manufacturers.[22]
In 2009 exclusive and private label merchandise accounted for 23.8% of Dillard's sales,[9], a figure Dillard's plans on increasing after adding new exclusive brands such as Pink Twill, a line of activewear (athletic and exercise apparel) designed for young women, a product segment previously underdeveloped in Dillard's merchandise offerings.[23]
Higher Raw Materials Costs May Force An Increase In Clothing Prices
In 2010, the price of cotton doubled, hitting a near 15-year high -- prices reached 90 cents per pound, compared to the 40 or 50 cent average. What caused the price increase? First, China, the world's largest cotton producer and consumer, experience a drought which damaged crops and caused the country to increase imports to make-up for the shortage. Second, India, the world's second largest producer, restricted its exports to protect domestic supplies and prices. Third, Pakistan, another large cotton-producing country, experienced massive floods which destroyed many crops. As a result of the increase in cotton prices, clothes makers will be forced to spend more money per unit of clothing, and as a result, will pass on these higher costs to consumers in order to maintain profit margins.
In a recovering economy, the last thing that consumers want is higher prices, especially on necessities like clothing. Many in the fashion industry are expecting price increases of as much as $2 for a t-shirt. As consumers ease back into discretionary spending, higher clothing prices delay the recovery as they discourage spending. Companies like Dillard's rely on consumers spending money on clothes, and if higher prices discourage consumer spending, the company's bottom line will suffer.[24]
Department Store Migration to Off-Mall Locations
At the end of 2009, all of Dillard's 309 stores were located in malls,[1] as Dillard's is lagging behind its competitors with regards to a growing emphasis on off-mall store locations. For example, Kohl's (KSS) is a leader in the off-mall trend, operating 985 of its 1058 stores in off-mall locations at the end of 2009.[25] J.C. Penney (JCP) operated 1,108 stores at the end of FY09, only 92 of which were off-mall,[26] but, JCP is trying to catch up to companies such as Kohl's, as 16 of their 17 new stores in 2009 were off-mall.[27]As Dillard's is far behind its competitors with regards to this trend, it is positioned to lose market share from its competitors as consumers continue to shop more often in off-mall locations, refraining from frequenting malls and subsequently avoiding Dillard's stores.
Since the 2000's began, consumers have shifted their shopping habits to strip-malls and shopping centers rather than traditional malls. [11]Department stores are traditionally attached to malls, but have begun moving out into shopping centers and other "off-mall" locations to follow the changing customer's shopping patterns. Off-mall stores are cheaper to operate than traditional mall-based department stores, due to smaller real estate costs and less in-store employees, and offer consumers convenience by serving as a one stop shop. Dillard's is positioned to lose from this trend as none of their stores are in off-mall locations.
Competition
Dillard's is one of the smallest national department store retailers, with $6.1 billion of net sales in 2009[2] and 309 stores at the end of January 2010.[1] It competes primarily against other department stores, but also is facing increasing competition from discounters and mass merchandisers like Target (TGT) and Wal-Mart (WMT) as these companies grow their clothing and home goods categories.
Dillard's primary competitors are moderate- and higher-priced department stores, J.C. Penney (JCP), Macy's Inc. (M) and Sears Holdings (SHLD).
Department stores:
J.C. Penney (JCP) is significantly larger than Dillard's, with far greater 2009 sales and stores than Dillard's ($17.6 billion; 1,108).[3] J.C. Penney's prices are comparable to Dillard's but JCP carries less prominent brand name merchandise. JCP relies more heavily on its own exclusive and private label products than Dillard's, which represented 54% of total sales in 2009.[28] Almost all of J.C. Penney's stores are located in malls, but the company is moving to an off-mall model with over 90% of new stores being opened in off-mall locations.[26]
Macy's Inc. (M) is far larger than Dillard's in terms of sales ($23.5 billion in FY09) and number of stores (850 at end of FY09).[4] Macy's carries a very comparable variety of branded merchandise as Dillard's, with extensive offerings from Polo Ralph Lauren (RL), Calvin Klein, Kenneth Cole Productions (KCP) and other fashion brands. Consequently, only 19% of Macy's sales in FY09 were from private label merchandise.[29] Macy's is a mall-based department store chain, with no announced plans to engage in the off-mall trend.
Dillard's carries brands such as Chanel, Clinique, DKNY, Dior, Dolce & Gabbana, Jones New York, Levi's, and Ralph Lauren.
Dillard’s (NYSE
DS) operates a chain of department stores across the U.S., with 309 stores open nationwide as of January 2010. [1] Dillard's targets middle- and upper-class consumers with premium-priced branded and private label clothing, cosmetics, accessories and home goods. Dillard's $6.1 billion of sales in 2009[2] place it well behind its national department store competitors J.C. Penney (JCP) and Macy's Inc. (M) which earned $17.6 billion and $23.5 billion in 2009 sales respectively.[3][4]Since the beginning of the U.S. recession,[5] retailers have suffered from declining consumer spending on non-necessities, and Dillard's has been no exception. Dillard's net sales fell 11%[2] and same store sales declined 10% in 2009.[6] Dillard's has fared worse than lower-priced department stores like Kohl's (KSS), which had a 0.4% increase in net sales in 2009[7] and discounters like Target (TGT), which had a 0.6% increase in net sales in 2009, [8] because price conscious consumers flocked to lower priced stores in order to save money.
Contents
1 Company Overview
1.1 Business Segments
1.2 Divestment of Credit Card Business
2 Business Growth
2.1 FY2009 (ended January 30, 2010)[2]
2.2 Q1 2010 (ended May 1, 2010)[14]
2.3 Q2 2010 (ended July 31, 2010)[15]
2.4 Q3 2010 (ended October 30, 2010)[16]
3 Trends and Forces
3.1 Dillard's Faces Slow Recovery from Economic Downturn
3.2 Growing Dillard's Exclusive and Private Brands
3.3 Higher Raw Materials Costs May Force An Increase In Clothing Prices
3.4 Department Store Migration to Off-Mall Locations
4 Competition
5 References
Dillard's offers its own exclusive and private label brands alongside merchandise from branded manufacturers, which represented approximately 23.8% of total sales in 2009.[9] These brands can drive higher profit margins, so Dillard's is introducing new lines to grow the penetration of these private label products. Growing these brands is key to Dillard's competitiveness with its larger competitors, such as Macy's Inc. (M) and J.C. Penney (JCP). However, Dillard's lags behind larger and smaller competitors by the fact that all of the company's 309 stores are located in malls [10]whereas those of its competitors have several off-mall locations -- Dillard's risks losing market share as more consumers shift to shopping at off-mall locations.[11]
Company Overview
Dillard’s operates mall-based department stores and an e-commerce site in the United States that sell high-priced branded and private label merchandise. The company earned $6.1 billion in total revenues in 2009, an 11% decrease from sales in 2008.[2]
Dillard's stores and e-commerce site carry a variety of clothing, accessories and home goods. The company's merchandise offerings include products from premium branded manufacturers, such as Guess? (GES) and Polo Ralph Lauren (RL), in addition to exclusive and private label brands that Dillard's wholly owns or co-owns with outside partners, such as the Roundtree & Yorke and Antonio Melani brands. These brands represented 23.8% of Dillard's net sales in 2009.[9] Dillard's primary customers are women, typically in the middle- and upper-class. Consequently Dillard's bestselling product segment in 2009 was Ladies' Apparel and Accesories, which accounted for 36% of total sales (51% if including Cosmetics sales as well).[12]
Business Segments
Dillard's operates under six different business segments:[12]
Cosmetics (15% of net sales)
Ladies’ apparel and accessories (36% of net sales)
Juniors’ and children’s apparel (8% of net sales)
Men’s apparel and accessories (17% of net sales)
Shoes (14% of net sales)
Home and furniture (7% of net sales)
The company also has a small construction segment which accounts for 3% of net sales.
Divestment of Credit Card Business
Until 2004, Dillard's issued a private credit card, which could only be used at Dillard’s. The company sold its private credit card business to GE Consumer Finance (“GE”) for $1.25 billion in August 2004.[13]In connection with the agreement, Dillard’s and General Electric Company (GE) entered into a long-term marketing and servicing partnership whereby GE owns the outstanding account and any new accounts opened by Dillard's customers. In return, Dillard’s receives ongoing payments from GE for charges made to these credit cards. The sale of this unit allows Dillard’s to continue serving its customers with the private credit card while utilizing GE's operational and marketing capabilities.
Business Growth
FY2009 (ended January 30, 2010)[2]
Dillard's incurred a net gain of $68 million in 2009, compared to its $240 million net loss in 2008. The net gain did not come from higher sales, but rather a in improvement in gross margin as the company benefited from cost control initiatives such as improvements in inventory management and the closing of 6 under-performing stores.
Net sales were $6.1 billion in 2009, down 11% from net sales of $6.9 billion last year and 15% from net sales of $7.2 billion in 2007. The company attributes the significant decline in net sales to the recessionary environment. Dillard's sales were hurt as its target consumer market of middle-to-upper-class shoppers switched to discounted retailers to cut down discretionary spending.
Comparable store sales decreased by 10% during 2009, with the most notable declines in the apparel and home goods categories.
As of January 2010, the company operated 309 stores, a net decrease of 6 stores compared to 2008.
Operating profit for was $84 million, a $460 million improvement from the operating loss of $380 million during the previous fiscal year. Operating margin was 1.4% of net sales.
Q4 - net income was $80 million for the quarter, an improvement over the $150 million net loss for the quarter in 2008. However, net sales were down 10% from the previous year, showing that the company was improving its margin in order to make a profit.
Q3 - Dillard's net income was $8.0 million for the quarter. This was better than the previous-year fiscal quarter, in which there was a net loss of $56.0 million. Despite having 10% lower net revenues and a 9% decrease in same-store sales, the company was able to reduce its inventory by $490 million or 22% and decrease SG&A expenses by 290 bps.
Q2 - The company had a net loss of $26 million, an improvement over the net loss of $38 million the previous year. Net sales were also down 12%.
Q1 - Net income tripled to $7.6 million for the quarter. Net sales declined 12%.
Q1 2010 (ended May 1, 2010)[14]
Dillard's first quarter net income was $48.8 million, an six fold increase from net sales of $7.7 million a year earlier. The growth in earnings was not due to higher sales but rather to lower expenses and cost saving strategies.
Net revenue for the quarter was $1.48 billion, down 1.5% from net revenue of $1.51 billion a year ago. The company attributes the weaker weaker numbers to its construction business, CDI Contractors. Excluding the effects from CDI, net merchandise sales actually grew 1%. In addition, comparable store sales increased 2% for the quarter.
Cost of sales declined 6.6% and SG&A expenses declined 5% due to cost control measures and store closures.
Dillard's opened two stores during the quarter and finished with a total of 299 Dillard's stores and 12 clearance stores.
Q2 2010 (ended July 31, 2010)[15]
Dillard's second quarter net income was $6.8 million and increase over the net loss of $26.7 million that occurred in the previous year period. The company benefited from a $2.6 million gain from the sale of a building and $2 million from an income tax benefit.
Net revenue fell 2.7% to $1.39 billion and same-store sales remained flat. Merchandise sales fell 1% for the period.
Dillard's merchandise gross margin increased 270bps. Store inventory declined 6%.
The company closed one store during the quarter and finished with 296 stores.
Q3 2010 (ended October 30, 2010)[16]
Dillard's third quarter net income increased 80% to $14.4 million. The company attributed the strong gain to improved margins, reduced expenses, and lower inventory.
Despite the gains in net income, net sales fell 1% to $1.37 billion.
Advertising and SG&A expenses decreased by $3.5 million to $398.5 million during the quarter.
Inventory at stores open at least a year fell 2%.
Trends and Forces
Dillard's Faces Slow Recovery from Economic Downturn
The sluggish economy has hurt Dillard's performance just as it has hurt most other department stores. Stores with higher-priced goods that target upper-class customers, such as Dillard's, struggled through the recession as shoppers cut back on their spending by trading down to lower-priced merchandise. As a result, Dillard's experienced significant declines in sales, with net sales decreasing 5.2% and same store sales dropping 7% in FY08.[17] Lower-priced stores, such as Kohl's (KSS) fared better than Dillard's as shoppers trade down and look for deals. Kohl's net sales only fell 0.5% in FY08.[18] During the period, Dillard's performed slightly more effectively than luxury department stores, such as Nordstrom (JWN) and Saks (SKS), which experienced drops in same store sales at 9% and 6.1% in FY08, respectively. [19][20]
However, in 2009 the economy started to recover[21] and has continued into 2010. The strengthening economy means that consumers will be more willing to spend money on discretionary goods and will put more emphasis on quality rather than price. However the recovery of consumer spending and confidence will be slow to reach the level it was at before the recession. In FY2009, Dillard's net sales and comparable store sales declined by 11% and 10% respectively,[2] indicating that consumers still had not transitioned to buying the high priced items that Dillard's sells. This pattern changed somewhat in 2010 when in the first quarter, net income increased six times its 2009 levels, but due to cost saving measures rather than increased sales (sales fell 1.5% for the period).[14] This trend has continued into Q2 2010 as the company's net income increased due to the sale of a building and an income tax benefit, despite net sales falling 2.7%.[15]
Growing Dillard's Exclusive and Private Brands
Department stores are increasingly seeking to distinguish themselves and earn higher profit margins by offering exclusive brands and private label brands. Exclusive brands are brands marketed under the wholesaler's name that are sold only in a particular chain; one exclusive brand at Dillard's is the Antonio Melani line that can only be purchased online or at Dillard's stores. Private label brands are produced by wholesalers, but sold under the brand name of the retailer. Exclusive brands such as Gianni Bini and Roundtree & Yourke, can help draw customers into Dillard's stores, as the products can only be found at Dillard's. Dillard's own private label products are typically priced lower than branded merchandise, but have a higher profit margin for Dillard's as the retailer is able to receive the good at a lower cost by avoiding branded manufacturers.[22]
In 2009 exclusive and private label merchandise accounted for 23.8% of Dillard's sales,[9], a figure Dillard's plans on increasing after adding new exclusive brands such as Pink Twill, a line of activewear (athletic and exercise apparel) designed for young women, a product segment previously underdeveloped in Dillard's merchandise offerings.[23]
Higher Raw Materials Costs May Force An Increase In Clothing Prices
In 2010, the price of cotton doubled, hitting a near 15-year high -- prices reached 90 cents per pound, compared to the 40 or 50 cent average. What caused the price increase? First, China, the world's largest cotton producer and consumer, experience a drought which damaged crops and caused the country to increase imports to make-up for the shortage. Second, India, the world's second largest producer, restricted its exports to protect domestic supplies and prices. Third, Pakistan, another large cotton-producing country, experienced massive floods which destroyed many crops. As a result of the increase in cotton prices, clothes makers will be forced to spend more money per unit of clothing, and as a result, will pass on these higher costs to consumers in order to maintain profit margins.
In a recovering economy, the last thing that consumers want is higher prices, especially on necessities like clothing. Many in the fashion industry are expecting price increases of as much as $2 for a t-shirt. As consumers ease back into discretionary spending, higher clothing prices delay the recovery as they discourage spending. Companies like Dillard's rely on consumers spending money on clothes, and if higher prices discourage consumer spending, the company's bottom line will suffer.[24]
Department Store Migration to Off-Mall Locations
At the end of 2009, all of Dillard's 309 stores were located in malls,[1] as Dillard's is lagging behind its competitors with regards to a growing emphasis on off-mall store locations. For example, Kohl's (KSS) is a leader in the off-mall trend, operating 985 of its 1058 stores in off-mall locations at the end of 2009.[25] J.C. Penney (JCP) operated 1,108 stores at the end of FY09, only 92 of which were off-mall,[26] but, JCP is trying to catch up to companies such as Kohl's, as 16 of their 17 new stores in 2009 were off-mall.[27]As Dillard's is far behind its competitors with regards to this trend, it is positioned to lose market share from its competitors as consumers continue to shop more often in off-mall locations, refraining from frequenting malls and subsequently avoiding Dillard's stores.
Since the 2000's began, consumers have shifted their shopping habits to strip-malls and shopping centers rather than traditional malls. [11]Department stores are traditionally attached to malls, but have begun moving out into shopping centers and other "off-mall" locations to follow the changing customer's shopping patterns. Off-mall stores are cheaper to operate than traditional mall-based department stores, due to smaller real estate costs and less in-store employees, and offer consumers convenience by serving as a one stop shop. Dillard's is positioned to lose from this trend as none of their stores are in off-mall locations.
Competition
Dillard's is one of the smallest national department store retailers, with $6.1 billion of net sales in 2009[2] and 309 stores at the end of January 2010.[1] It competes primarily against other department stores, but also is facing increasing competition from discounters and mass merchandisers like Target (TGT) and Wal-Mart (WMT) as these companies grow their clothing and home goods categories.
Dillard's primary competitors are moderate- and higher-priced department stores, J.C. Penney (JCP), Macy's Inc. (M) and Sears Holdings (SHLD).
Department stores:
J.C. Penney (JCP) is significantly larger than Dillard's, with far greater 2009 sales and stores than Dillard's ($17.6 billion; 1,108).[3] J.C. Penney's prices are comparable to Dillard's but JCP carries less prominent brand name merchandise. JCP relies more heavily on its own exclusive and private label products than Dillard's, which represented 54% of total sales in 2009.[28] Almost all of J.C. Penney's stores are located in malls, but the company is moving to an off-mall model with over 90% of new stores being opened in off-mall locations.[26]
Macy's Inc. (M) is far larger than Dillard's in terms of sales ($23.5 billion in FY09) and number of stores (850 at end of FY09).[4] Macy's carries a very comparable variety of branded merchandise as Dillard's, with extensive offerings from Polo Ralph Lauren (RL), Calvin Klein, Kenneth Cole Productions (KCP) and other fashion brands. Consequently, only 19% of Macy's sales in FY09 were from private label merchandise.[29] Macy's is a mall-based department store chain, with no announced plans to engage in the off-mall trend.
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