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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 a slowing economy squeezes consumers, Shapira isn't expecting much positive change for Dillard's any time soon, despite attempts to bring more updated products to the stores.

"Fashion is always a better strategy than dull," she said. "But their plan is one established by their competitors years ago. Customers vote with dollars, and Dillard's numbers aren't reflecting change."

Department store consolidation has eliminated all but a few major players and more specialty and online merchants have emerged, making it imperative that each define its position.

Rather than coupons and one-day sales, Dillard's relies on two clearance sales a year. "We want to create distance between us and Macy's, with less noise and chaos," Bull said. "We are often the only store in our smaller markets where customers can get upscale, contemporary assortments."

Some experts said Dillard's has not clearly differentiated itself. "It sounds like Belk to me," said Mark Vitner, senior economist at Wachovia. "Belk dresses up well in these middle markets. Dillard's has been hot and cold."

But Jim Stockman, Dillard's general merchandise manager of product development, said the key difference is that Dillard's brings fashion into more stores than its competitors. "Other retailers may have spectacular top-tier stores," he said. "But it doesn't always drive down to many stores."

Starting at zero in 1997, contemporary product is now in 150 doors and expanding to 200 this year, with lines like Cynthia Steffe, Amanda Uprichard and Parameter. For a slightly older fashion customer, Dillard's is expanding on lines such as Kenneth Cole. Bridge labels, including Ellen Tracy and Dana Buchman, are in 150 doors and expanding.

"Department store floor space used to be controlled by the big manufacturers, the Tommy Hilfigers, Laurens, etc., but now we're open to more suppliers and smaller lines," Stockman said.

Private label, now at around 20 percent, depending on the category, is as important as new brands in supporting the revamped fashion image.

"Private label was another dirty word," Dillard said. "It's no longer just basics product, but brands that we have to nurture. The customer can't perceive it as cheap house merchandise."
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