Holidays Should Buoy Dillard’s Slow Sales

Credit rating services dished out praise to Dillard’s for its continued financial success.  

Holiday spending is expected to increase this year, which should be welcome news for Dillard’s Inc.

The Little Rock retail chain has seen five straight quarters of same-store sales decreases.

Last month, Deutsche Bank maintained its “sell” rating on Dillard’s stock, which has been in place since February.

In the third quarter, Dillard’s reported net income of $22.8 million, down 50 percent from the same quarter a year ago. Its retail sales were $1.3 billion, a decrease of 4.3 percent from the same period a year ago.

For the quarter, Dillard’s again lagged behind its department store peers, such as Macy’s and Kohl’s, in key metrics, Deutsche Bank said in a Nov. 10 research report. While Dillard’s should see improvement in the current quarter, “further out, we remain concerned that [Dillard’s] lacks in-store innovation and a competitive omnichannel platform to revive traffic,” Deutsche Bank said.

During the fourth quarter, Dillard’s and other retailers are expected to see a boost from an increase in overall holiday spending, retailer groups said. Holiday spending, which includes shopping, travel and entertainment, is expected to be up 10 percent over the same period in 2015, according to an October news release from PricewaterhouseCoopers of New York, a multinational professional services network.

Consumers are more optimistic about the economy than they were last year, and that should translate to higher retail sales, Steven Barr, PwC’s U.S. retail and consumer leader, told Arkansas Business last week.

But that 10 percent increase in spending isn’t all going to retailers. The millennials have led a shift in the holiday shopping experience, Barr said. The millennials would rather receive gifts of travel and entertainment than traditional presents, he said.

“Millennials have made it very clear to us that they get as much pleasure out of spending an evening with their family and friends, perhaps over a dinner or concert, … as much as prior generations received the same personal enjoyment of gift-giving,” Barr said.

Consumers are ready to spend, though, he said. “In many ways, the consumer has felt held back since the Great Recession,” Barr said. “Folks do like to get out and visit stores, shop online, share gifts with family, and the Great Recession … put a dark cloud over the consumer for a sustained period of time.”

Dillard’s Problems
Dillard’s and other department stores have had a tough time attracting customers lately.

Dillard’s retail sales for the nine-month period that ended in October were $4.2 billion, down 4.4 percent from the same period a year ago. Its net income for the nine-month period fell 39 percent to $112.3 million. And in six out of the past seven quarters, Dillard’s, which has 271 department stores, has seen same-store sales decrease. Same-store sales are a comparison of sales at stores that have been open at least a year and are considered an indicator of a retailer’s health.

One of Dillard’s problems is that its stores are in malls, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a national retail consulting and investment banking firm in New York. Being an anchor of a mall and operating a multilevel location is expensive because they have multiple floors they have to operate, Davidowitz said.

“So, the first problem is Dillard’s positioning, and is that going to get fixed?” he said. “No. Because there’s no way to fix it.”

He also said Dillard’s isn’t opening discount stores as quickly as other department stores have. Nordstrom’s, Saks Fifth Avenue and Macy’s recently have opened more discount stores — or discount sections in their stores — to attract shoppers looking for savings, he said.

Since November 2014, Dillard’s has opened five additional clearance centers, bringing the total to 23.

While the department store sector saw increased sales in November, that might not last, Davidowitz said. “The whole segment has headwinds,” he said. “So I can’t be optimistic about Dillard’s.”

In addition, Dillard’s online sales, which Dillard’s doesn’t break out in its reporting, are believed to be lagging behind other department store chains, he said.

“Shortly Amazon, if they haven’t already, is going to have more apparel sales than all of Dillard’s,” Davidowitz said. “Now that ought to give you some food for thought if I was Dillard’s.”

(Also see: EEOC Investigating Dillard’s Promotions)

Holiday Outlook
Retail watchers said the holiday season looks promising for department stores.

This holiday season should be a good one for retailers, said Britt Beemer, founder of America’s Research Group of Charleston, South Carolina.

He said the Black Friday weekend showed that discount stores remained the top draw for shoppers, but department stores saw twice as many shoppers this year as during the same period a year ago.

He said people generally feel better about the economy, which may have triggered the spending increase. Of the 1,000 people surveyed in the middle of November, 63 percent said they believed it would be easier to find a job today than it was a year ago, the ARG report said. And 60 percent said they are better off today than they were last year.

The National Retail Federation, the world’s largest retail trade association, also predicts a strong holiday season for retailers, although, according to its annual consumer spending survey, shoppers said they plan to spend 1.8 percent less than the $952 they spent last year. But the dollar amount still could climb this year. Nearly 90 percent of shoppers said they could be persuaded to spend an extra $25 this holiday season “if tempted by a good sale or promotion, the perfect gift for themselves or others or free shipping,” according to a NRF news release in October.

NRF spokeswoman Ana Serafin Smith told Arkansas Business last week that its members are happy with the Thanksgiving weekend sales this year. “We believe it’s going to be a strong holiday,” she said.

Dillard’s Inc. Same-Store Sales Percent Change

Same-store sales are sales at stores that have been open at least a year and are considered an indicator of a retailer’s health.

Source: Dillard’s Inc.