Strategic Challenges Facing Fashion Retailers Today Research Paper

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Dillard's, Inc.

Founded in 1938, Dillard's became a publicly traded company in May 1969 when it first offered its Class Common A 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 Web site (Investor overview, 2016). In addition, Dillard's owns and operates CDI, a general contractor, which performs the construction and remodeling work for company retail stores (Dillard's profile, 2016). This level of success is all the more remarkable given that this 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, though, Dillard's is faced with 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. (hereinafter alternatively "Dillard's" or "the company") competes is examined from an economic, social-cultural and technological perspective below.

Economic. The company does not target its marketing at discount-minded consumers because their prices are slightly higher than other retailers such as Sears or Kohl's, but their focus on providing consistently high-quality merchandise provides real value for consumers because these products last longer and look better every time they are worn. Nevertheless, the company is still vulnerable to downturns in the economy and the very real potential exists for its target market to resort to lower-priced alternatives during this 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 analysts emphasizes that:

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 the purchase decision for fashion apparel, but the transition to lower-priced alternatives can be eased when there is a perception that others are 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 that are in place at any given point in time.For instance, according to the aforementioned Dillard's customer, Lori Coleman, making the change to a discount retailer for clothes was a difficult decision that was facilitated by the fact that she saw some of her friends also shopping at Walmart. As Coleman puts it, "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." Much to her relief, Coleman spied friends at the big discounter" (cited in Cheap thrills for shoppers, 2009, p. 45).

Technological. Like other major retailers, the company uses technological solutions for a wide range of in-store and administrative applications, including inventory tracking, security, and for marketing its fashion line using its corporate Web site at http://www.dillards.com/.

Industry/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" (p. 37). The implications of these changes in the marketplace can be more readily discerned using a five forces of competition model as described below.

Threat of new entrants. Given the low cost of online start-ups that do not require substantial inventories of merchandise, 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).

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Bargaining power of customers. In the fashion industry, customers have significant clout when it comes to their bargaining power and this has been amply demonstrated by consumers opting for discount stores when they perceive the fashion they want at mid-range stores are priced 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 has 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 with major competitors being Kohl's, J. C. Penney Corporation and Macy's (Dillard's profile, 2016), all of which are struggling to capture the company's market share.

This analysis suggests that the company is faced with some difficult decisions in the months and years ahead concerning product lines and marketing strategies, issues that may represent significant challenges given Dillard's current internal situation as discussed below.

Internal Analysis

Given the dynamic external environment in which the company competes, it is little wonder that corresponding internal changes are taking place to keep pace with the changing marketplace. In an interview with a Dillard's executive, Maile determined that, "What's changing for many large retailers may not always be the physical dimensions of the store. In some cases, changes are going on inside the retailer to attract new business" (2009, p. 37). Following a period of time wherein a number of major fashion retailers used comparable and even the same brands in the product offerings, there has been a growing recognition among Dillard's executives that internal changes were needed to retain existing customers and attract new ones (Maile,2009). According to Maile, "In Dillard's case, private-label brands now make up more than 20% of the retailer's inventory" (2009, p. 37). Although these changes helped to strengthen the company's competitiveness, it is clear that Dillard's is at a critical juncture in its corporate history as described below.

Strategic Analysis

A strengths, weaknesses, opportunities and threats analysis or SWOT provides a useful framework in which to develop a strategic analysis of Dillard's current situation. According to Garner (2005), "Simply put, this acronym stands for assessing an agency's strengths, weaknesses, opportunities, and threats, a critical phase in the general planning process as it helps determine exactly where the agency is and what resources it may or may not have" (p. 18). A SWOT analysis of the environment in which the company competes is provided below.

Strengths. The company enjoys strong brand recognition in the markets in which it competes. In addition, the company's organizational culture emphasizes high quality customer service and product lines (Maile, 2009).

Weaknesses. The company's current chief executive, William T. Dillard II, is 71 years old (Dillard's profile, 2016) and he may not possess the management acumen needed to lead a modern, major fashion retailer.

Opportunities. The company is well situated to expand into other geographic markets (Azria & Bayando, 2011).

Threats. Perhaps the biggest threat facing the company today is the loss of market share to discount retailers (Cheap thrills for shoppers, 2009).

Performance Appraisal

The company's stock performance (stock symbol DDS) for the past 5 years to date (in blue) versus industry levels (in red) is shown in Figure 1 below.

Figure 1. Dillard's stock performance: past 5 years to date

Source: http://www.marketwatch.com/kaavio.Webhost/charts/big.chart?nosettings= 1&symb=DDS&uf=262144&type=2&size=2&sid=41560&style=1013&freq=1&time=12&rand=1295375213&ma=0&maval=50&lf=1&lf2=4&lf3=0&height=444&width=579&mocktick=1

As can be seen from the trends in Figure 1 above, the company experienced sustained growth during the period from early 2012 when it recovered from the Great Recession to the end of 2015 when it suffered a precipitous drop in its stock price; however, Dillard's stock performance largely mirrored the industry performance during this same period, suggesting that these same trends adversely affected other major fashion retailers.

While it is too soon to venture a prediction concerning the future direction of the company's stock performance, it is reasonable to suggest that based on its strong performance in the past and the internal changes the company has made to improve its competitive position that Dillard's will rebound to its pre-2016 levels in the foreseeable future. This assertion is consistent with the assessment by Dillard's Chief Executive William T. Dillard II who emphasized that, "We are disappointed with our third-quarter [2015]….....

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