One of the best-performing stocks in recent years isn’t a tech giant or a high-flying startup. Instead, it’s a family-run department store chain that doesn’t have a wide following on Wall Street.
Shares in Dillard’s Inc.
are up more than 1,500% since April 2020. The company’s market value is comparable to Macy’s Inc.,
even though Dillard’s has less than a third of Macy’s annual sales.
The Little Rock, Ark.-based retailer has about 280 stores, most of them in the South, and is one of the few department store chains still run by its founding family.
The CEO and president, both sons of the company’s founder, visit the stores weekly and know inside out what sells best at each location, people who have worked with them said. They have an old-fashioned shopkeeper mentality that combines smart merchandising with smart financial management, according to the people and analysts.
The Dillard family has instilled a sense of loyalty in the workforce, many of whom have been with the company for decades. Employees are encouraged to give customers personalized attention, which keeps customers coming back, the people said.
Dillard’s management has been criticized for not embracing change. In some ways, that steadfastness has benefited the company. The retailer did not pursue growth as some of its peers did by opening hundreds of stores that later had to close.
It also did not buy internet startups and resisted urging investors to raise money by selling its properties. Dillard’s owns the majority of its stores, strengthening its balance sheet by minimizing lease payments and debt. More recently, it avoided a product surplus that weighed on other chains.
“Dillard is sticking to his knitting,” said Joel Bines, former general manager of AlixPartners’ retail practice, who now runs consulting firm Spruce Advisory. “They are a Steady Eddie with an intense focus. Their customers are really loyal to the brand and almost fanatical in their enthusiasm.”
The retailer, with annual sales of about $6.9 billion, does not 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 developed his shopping skills in his father’s shop before attending the University of Arkansas and later Columbia University. He opened his first store in 1938 and expanded the business during the mid-20th century boom, while also picking up smaller rivals. The company went public in 1969.
Mr. Dillard eventually passed the 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, are president and executive vice president respectively. Daughters Drue Matheny and Denise Mahaffy are also 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, and Alex, 73, have a reputation as tough negotiators who dislike discounting merchandise, the people said. If a competing department store sells a brand at a lower price, they will reduce that brand’s orders rather than match the lower price.
The Dillard family survived a 2008 attempt by activist investors to loosen its grip on the company, which it controls through ownership of the majority of the Class B stock that two-thirds of the directors elect. Dillard family members and employees who participate in the company’s 401(k) plan own more than half of the Class A shares traded on the New York Stock Exchange.
The skyrocketing share price plus two special dividends of $15 per share paid in December 2021 and January 2023 have enriched common employees and increased the value of the family’s interests in the company. Share buybacks have increased the value of the remaining shares. There are approximately 17 million Class A shares outstanding, up from more than 100 million two decades ago.
The family has at times been accused of being insular and slow to adapt to retail changes, including the shift to e-commerce. Unlike many major retailers, Dillard’s does not disclose how much of its revenue comes from online sales.
“They’re not always very responsive to new ideas,” said Neil Saunders, general manager of research firm GlobalData. “What they lack in innovation they make up for in traditional retail skills.” He said Dillard’s stores are neat, easy to shop for, and stocked with goods customers actually want — skills other department store chains have lost.
Those tactics have earned the company a loyal following.
When Tracy Beavers is looking for a swimsuit, the only place she’ll shop is Dillard’s. “Trying on a swimsuit is no fun,” says the 52-year-old business coach, who lives in Little Rock. “The Dillard salespeople give me an honest opinion. They won’t tell me I look cute somewhere if I don’t.”
Before the Covid-19 pandemic, Dillard’s suffered from the same overbuying and discounting habit that plagued other retailers, the people said.
It thinned its inventory during the pandemic and remained lean as other chains bought too much last year and ended up with too much stuff.
One of the ways Dillard avoided that fate was by preaching the value of light supplies to his merchandise buyers. The vice president of accounting recently met with buyers across the country to explain how excess merchandise hurts the company’s bottom line, company spokeswoman Julie Guymon said.
The company’s inventory is down 23.5% in the fiscal year ending Jan. 28, compared to 2019. Meanwhile, earnings were $891.6 million in the most recent fiscal year, an increase of more than 700% compared to the same period in 2019 – much better than rivals.
Dillard’s faces challenges that have weighed on other department store chains, such as declining demand from inflation-weary buyers.
Total retail sales in the fourth quarter were level with the same period a year earlier, while higher markdowns weighed on profit margins. The most recent financial results have weighed on the stock, which is down more than 11% since Dillard’s February 21 earnings release. Some of its retail peers reported stronger sales declines in the main Christmas shopping period.
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The bottom line is that costs are reduced through shorter shopping hours. Shops are now open from 11am to 8pm compared to 10am to 9pm before the pandemic.
The reduced hours allow employees to work a full day, rather than split the day into two shifts, which helps with planning, Ms Guymon said.
Some employees said they are trained to act like personal shoppers and know their customers by name.
That’s a big draw for Michael Nuells, a 32-year-old actor who lives in Las Vegas. “When people know who you are, it’s like coming home,” he said. “They’ll say, ‘Hey Michael, you’re back. What are you looking for?’”
Write to Suzanne Kapner at Suzanne.Kapner@dowjones.com
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