Makeover at Dillard's: Store Moving Upscale, Adding More Fashion

As activist investors raise the heat, Dillard's Inc. says its turnaround strategy is sound but concedes that reinventing a department store takes time.

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As activist investors raise the heat, Dillard's Inc. says its turnaround strategy is sound but concedes that reinventing a department store takes time.

Dillard's wants to position itself above Macy's and Belk, and below Nordstrom and Bloomingdale's, with the goal of offering "affordable luxury and less promotion," said Julie Bull, director of investor relations.

The chain, with 330 stores in 29 states concentrated mostly in midsize markets of the Southeast and Southwest, is staying the course set a few years ago. It is trying to evolve from moderate to better prices and update from traditional, basic product to more enticing fashion assortments, said William T. Dillard 3rd, vice president of accessories, intimate apparel and shoes and the grandson of William T. Dillard, who started the company in 1938 in Little Rock, Ark.

The direction is inspired by specialty stores, with edited product in sharper, snappier presentations. Dillard's has moved from the old "sea of racks'' formula to showcasing key lines in in-store boutique settings. BCBG Max Azria, Peter Nygård, Lucky Brand Jeans and other labels have dedicated space, with distinctive color, unique lighting, signage or video of runway footage on plasma-screen TVs.

New stores are smaller, averaging 170,000 square feet in open-air lifestyle centers, compared with 200,000 square feet for older units in enclosed malls.

"If you haven't been in a Dillard's lately, you wouldn't recognize it,'' Dillard said.

The change to a more updated product is crystallized in "The Style of Your Life," a multipage print advertising campaign launched in 2006. A first for Dillard's, the campaign appeared in Vogue and other fashion magazines, and the slogan became the cornerstone of Dillard's attempt to change consumers' perception of its image.

"We are working day by day, category by category, to get where we want to be," Dillard said.

The changes were under way before the push by unhappy shareholders.

"Nothing good ever came easy," Dillard said. "It's been a tough year for everyone."

Investors, led by the New York-based hedge funds Barington Capital Group and Clinton Group Inc., which own more than 5.3 percent of Dillard's shares, are not satisfied. The stock closed at $15.93 on Tuesday, down 8.66 percent. The 52-week low was $14.46. The high was $40.56.
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