Dillard's Inc. Strategic Analysis: External and Internal Review

Introduction

Founded in 1938, Dillard's became a publicly traded company in May 1969 when it first offered its Class A Common stock to the public (Investor FAQs, 2016). Today, Dillard's, Inc. is one of the country's leading fashion retailers, with 21,600 employees, annual sales exceeding $6.6 billion generated by 274 retail outlets and 23 clearance centers nationwide, as well as a corporate website (Investor Overview, 2016). In addition, Dillard's owns and operates CDI, a general contractor that performs construction and remodeling work for company retail stores (Dillard's Profile, 2016). This level of success is all the more remarkable given that the company was started by William Dillard using an $8,000 loan from his father, with one modest retail facility in Nashville, Arkansas (History of Dillard's, 2016).

Despite its successful operations to date, Dillard's faces increasing competition as well as changing consumer preferences. To determine how this major retailer can best respond to these challenges, this paper provides an external and internal analysis of the competitive environment in which Dillard's competes, followed by a summary of the research and important findings concerning these issues.

External Analysis

General Environment

The general external environment in which Dillard's, Inc. competes is examined from economic, socio-cultural, and technological perspectives below.

Economic

The company does not target discount-minded consumers because its prices are slightly higher than other retailers such as Sears or Kohl's. However, its focus on consistently high-quality merchandise provides real value for consumers, as these products last longer and look better over time. Nevertheless, the company remains vulnerable to economic downturns, and the potential exists for its target market to resort to lower-priced alternatives during such periods (Wehrfritz, 2009).

For example, following the Great Recession of 2008, many formerly loyal Dillard's customers switched to discount brands offered by megaretailers such as Walmart. In this regard, a report from one industry analyst emphasizes:

Lori Coleman always considered herself a bit of a fashion plate. She has a closet full of outfits by Ralph Lauren and Tommy Hilfiger, bought at her favorite department store, Dillard's. But with relentless headlines about layoffs and stock-market chaos, the 42-year-old Akron, Ohio, health-care executive is shopping someplace new: Wal-Mart. (Cheap Thrills for Shoppers, 2009, p. 45)

Clearly, price is a major factor in purchase decisions for fashion apparel. However, the transition to lower-priced alternatives can be eased when consumers perceive that others are also being forced to cut corners during times of economic downturn, as discussed further below.

Socio-Cultural

While the company is not a high-street fashion retailer, it does offer a wide range of exclusive and stylish fashions that appeal to consumers, especially when they see their friends wearing them. Therefore, the potential exists for the company to lose or gain market share depending on the prevailing socio-cultural factors at any given point in time.

For instance, according to Dillard's customer Lori Coleman, making the change to a discount retailer for clothes was a difficult decision that was facilitated by seeing her friends also shopping at Walmart. As Coleman explains, "It was so hard to walk in there. But the economy is scary and I'm trying to conserve. As long as everybody else is doing it" — and to her relief, she spotted friends at the big discounter (cited in Cheap Thrills for Shoppers, 2009, p. 45).

Technological

Like other major retailers, Dillard's uses technological solutions for a wide range of in-store and administrative applications, including inventory tracking, security, and marketing its fashion line through its corporate website.

Industry and Task Environment

One of the defining hallmarks of the fashion apparel industry is its dynamism, which requires a flexible and nimble response from retailers such as Dillard's. In this regard, Maile reports that "executives with Dillard's say growth strategies may mean changes in store for their business, as the retailing industry adapts to competition and new consumer preferences [and] large retailers have to adapt to the changing market" (2009, p. 37). The implications of these marketplace changes can be more readily assessed using Porter's five forces model, as described below.

Threat of New Entrants

Given the low cost of online start-ups that do not require substantial merchandise inventories, the threat of new entrants is deemed moderate.

Threat of Substitute Products

Although an increasing percentage of the company's product line is comprised of exclusive name brands, the threat of substitute, discounted products remains high. These issues are discussed further in the internal analysis below.

Bargaining Power of Customers

In the fashion industry, customers hold significant bargaining power. This has been amply demonstrated by consumers opting for discount stores when they perceive that mid-range store prices are beyond their means (Maile, 2009).

Bargaining Power of Suppliers

While Dillard's does not enjoy the purchasing clout of megacorporations such as Walmart, the fact that it operates nearly 300 retail outlets across the country provides the company with significant bargaining power (Investor Overview, 2016).

Intensity of Competitive Rivalry

The company competes in the department store sector, which is in a mature life cycle stage. Its major competitors include Kohl's, J.C. Penney Corporation, and Macy's (Dillard's Profile, 2016), all of which are working to capture a larger share of the same market.

This analysis suggests that the company faces some difficult decisions in the months and years ahead concerning product lines and marketing strategies — challenges made more pressing by Dillard's current internal situation, as discussed below.