Regional department store Dillard’s reported third quarter net sales rose to $1.42 billion from $1.36 billion in the year-ago quarter. Total merchandise sales rose 2% to $1.34 billion from $1.31 billion a year ago, largely on the strength of ladies’ accessories and lingerie followed by juniors’ and children’s apparel, and sales were slightly above trend in men’s apparel and accessories, and home and furniture, according to a company press release.
Net income in the quarter reached $7.4 million down from $14.5 million in the year-ago quarter, the company said. Sales in comparable stores for the period rose 3%, which CEO William T. Dillard II called “disappointing,” saying that “markdowns weighed heavily on gross margin, particularly in the first month.”
Gross margin from retail operations declined 87 basis points due to the increased markdowns. Consolidated gross margin declined 160 basis points of sales compared to last year, “considerably more” than that of retail operations alone due to increased volume at the company’s CDI contracting business, a lower gross margin business.
Dillard’s, which is still controlled by its founding family, seems to have largely escaped the doldrums experienced by many department stores in recent years, but the third quarter showed that it’s not immune.
The weakness isn’t surprising, according to retail analyst Nick Egelanian, president of retail development consultants SiteWorks. Not even Dillard’s, which like Nordstrom didn’t over-expand the way Macy’s did and enjoys the kind of family control that Nordstrom has pursued of late, can escape a downswing that has been precipitated by a range of forces in retail.
“The issue is that the department store industry has been in secular decline for over 35 years as the country has transitioned from a mall-based ‘Commodity Retail’ delivery platform to a more efficient strip center delivery model,” he told Retail Dive in an email, adding that the sector’s troubles can’t be simply foisted onto the rise of Amazon or e-commerce. “Department store sales have fallen in real dollars from about $300 billion annually in the 1980’s to under $65 billion today.”
Dillard’s and Nordstrom haven’t suffered like Sears, J.C. Penney or Macy’s, but they nevertheless have been hurt by the rise of off-price retailers like TJ Max, Ross and Home Goods, specialty players like Ulta and fast-fashion retailers like H&M and Zara that “continue to aggressively open stores and grab market share,” he said.
“Family ownership and attention to merchandising detail are core strengths of Dillard’s (and Nordstrom), but they are still battling fierce headwinds and will need to continue to evolve their product, service and merchandise propositions to emerge as survivors in what we expect to be a much smaller department store industry when the dust settles,” Egelanian warned.