Dillard's Store Closings May Not End Troubles

by Mark Friedman  on Monday, Aug. 4, 2008 12:00 am  

A beleaguered Dillard's Inc., buffeted by a sluggish economy and plummeting stock price, is closing 13 underperforming stores this year in an effort to boost its bottom line. But closing stores might not help the Little Rock department store chain in the long run, one retail consultant said.

(To view a list of the stores Dillard's plans to shut down, click here.)

"I don't know if this company can survive the next five years as a free-standing company," said Howard Davidowitz of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York. "Dillard's is a troubled company, and they're getting killed. They're going to somehow have to come up with some answers."

For the year ending Feb. 2, 2008, revenue for Dillard's fell 6 percent to $7.2 billion. Its net income that year was $53.8 million, a decline of 78 percent from the prior year.

Dillard's faces myriad problems. It's one of the worst-performing department store chains, and consumers are nervous about spending money on items they don't need, Davidowitz said. And even Dillard's' one pillar - its real estate holdings - is showing cracks.

Unlike most department stores, Dillard's owns a majority of its stores - 77 percent - which are mainly anchors for enclosed malls. The real estate value at enclosed malls, however, could be slipping because shoppers are starting to prefer "lifestyle centers," which typically feature open-air streetscapes and easy parking access to stores, according to the America's Research Group of Charleston, S.C.

Even if Dillard's decided to sell now, it wouldn't receive top dollar because real estate prices are down.

"Dillard's in our view finds itself in a challenging retail real estate environment," wrote Credit Suisse research analyst Michael Exstein in a July 17 report.

He noted that even in Little Rock a number of lifestyle centers were popping up around the city, which hurts the value of malls.

"In many markets, it appears difficult for mall anchors to get a bid on a store they might want to divest," Exstein wrote.

Sales at enclosed malls were off 1.1 percent from January through May 2008 compared with the same period in 2007, according to a July report by the International Council of Shopping Centers in New York.

'Book Value Overstated'



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