Editor’s Note: This article appeared in the Oct. 23, 1989, issue of Fortune.
About 240 miles southeast of Bentonville, Arkansas, home of Sam Walton and his Walmart empire, is a lesser-known department store chain called Dillard’s. You may not be familiar with the $2.7-billion-a-year Little Rock company, partly because its stores tend to be in places like Council Bluffs, Iowa, and Hutchinson, Kansas. Another reason is that its founder and chairman, William Dillard, 75, is as publicity shy as his buddy Sam. A recent talk with FORTUNE is the first lengthy interview Dillard has ever given to a major publication.
A couple of other similarities between Dillard’s and Wal-Mart: a decided lack of corporate ostentation and remarkable financial performance. In a tough retailing environment, Dillard’s profits rose 25% last year, to $114 million, and they increased 24% in this year’s first half. Over the past decade the company has racked up 25% compound annual growth in earnings per share and a 37% annual return to investors. In an industry roiled lately by takeovers and bankruptcies, here’s an outfit that seems to know something the others don’t.
Those standout results emanate not from a gleaming tower but from a low-slung tan brick building—think of an oversize post office minus the lawn and shrubs. Should you need a landmark to find it in downtown Little Rock, look for the Steak & Egg Diner across the street.
Do not be misled by the plain-Jane facade: You will not be dealing with a bunch of unsophisticated good ol’ boys inside. Near the end of the uncarpeted hallway on the second floor are the offices of Dillard and two of his sons, Bill, 44, who is president, and Alex, 39, executive vice president. Together they lead one of today’s sharpest, most technologically advanced retailers. Their net worth: $120 million, well below Walton’s $8.7 billion.
The Dillards, especially William Sr., are consummate dealmakers who insist on tight cost controls and centralized administration of everything from payroll to buying. And like Seattle’s Nordstrom family, whose stores set the industry standard for customer service, the Dillards try just a little harder because their name is over every door. (In addition to Bill and Alex, son Mike, 38, also works for the company, as do daughters Drue, 42, and Denise, 31.) Perhaps that sense of personal connection helps explain why William Sr. places such particular value on loyalty—among employees, suppliers, and customers.
An important factor in Dillard’s success is the company’s near-fanatical focus on computer technology. Want to know how much business each of the nine St. Louis stores has done as of 11 this morning? Any of the top executives can punch it up on an oversize computer monitor and see the figures instantly. Are those Estee Lauder cosmetics selling as fast as anticipated in Santa Fe? Within seconds the numbers are up on the screen.
Impressive as that is, the most valuable feature of Dillard’s computer system is its ability to get goods onto the selling floor faster than almost any other retailer. The program is called Quick Response, and it means that basic items—say, men’s dress shirts or ladies’ lingerie—can be electronically reordered from the vendor every week, based on the previous week’s sales, without human intervention. Goods that usually take a month to reorder and get into stores take only 12 days with Quick Response. Last year Dillard’s sales of items reordered through Quick Response increased 50%. Says program director Ray Heflin: “This is the way business is going to be done in the future. Right now we’re hoping to get that turnaround time down to eight days.” Suppliers love Quick Response because it enables them to reduce inventories by making just what’s needed.
Manufacturers that do not sell to Dillard’s want to, and those that do say they are amazed at the company’s professionalism—and loyalty. “We’ve certainly had our ups and downs as a company,” says Gary Smalley, senior vice president of sales and marketing for Seattle Pacific Industries, makers of the Union Bay brand of jeans and sportswear. “But Dillard’s has been incredibly supportive all the way. They don’t bounce you out because you’ve had one bad season.” Loyalty like that strikes suppliers that can’t get in as a bit cliquish. Says the national sales manager of a women’s sportswear firm: “We know who’s selling to them, and some of those companies aren’t that great. But Dillard’s will just keep reordering from them. They are one of the toughest stores in the industry to crack.”
Alex Dillard, who oversees store operations, simply smiles when he hears that common complaint. “Sure, we might be tougher to sell to, but we’re not going to go around switching vendors because someone can make something for us a little bit cheaper. We believe in building relationships, and that takes time.”
That attitude comes from William Dillard, an instinctive merchant who has spent the past 50 years refining his idea of what a department store should carry (reasonably priced brand-name goods aimed at middle-and upper-middle-class customers) and how it should be run (clean, well-lit stores, plenty of merchandise, and polite but not pushy sales help). His operating know-how has enabled him to acquire other companies’ failing stores—77 since 1984—and turn them into Dillard’s successes.
“William Dillard may look every day of his 75 years,” says a security analyst, “but he has the mind of a 40-year-old.”
In 1969, when the company went public, Dillard established two classes of stock to ensure that the family would never lose control. Class B, 98% owned by the Dillard family, elects two-thirds of the directors, making the company immune to takeover. “I think our two classes of stock have stood us in good stead over the years,” says William. “We haven’t really had to worry about quarterly reports.”
When the company was looking to expand in the late 1970s, Dillard raised $24 million by selling 20% of the Class A shares to Vendex America, a Dutch retailing concern. Over the years, that company has upped its stake—with William Dillard’s blessing—to 43%. The money gave Dillard’s the resources to open more stores and continue making acquisitions, but it also kept the stock from being widely traded, which put off investors and probably hurt the stock price. In a recent offering Vendex sold some of its stock, which reduced its stake in the company to around 30% and put more shares into circulation. To make itself more visible to investors, Dillard’s moved its stock listing from the American to the New York Stock Exchange in June. Shares have been trading recently at around $74, up from $58 in early July.
As you might expect of a man his age, William Dillard walks slow, talks even slower, and likes to pepper his conversation with phrases like “First, I’m going to tell you a little story” before getting around to answering a question. Once the anecdote is finished and the point made, however, he immediately zeros in on the question. Says Smith Barney analyst William Smith: “He may look every day of his 75 years, but he has the mind of a 40-year-old.”
Nowhere is that more evident than in Dillard’s acquisitions. Nasty bidding wars? That’s something the chief only reads about in the papers. Investment banking firms don’t collect fat fees for advising him on any of his deals. When he heard in 1986 that Macy’s CEO Ed Finkelstein was interested in selling his Midwestern division, Dillard and vice chairman Ray Kemp, 65, flew to New York. It was the week before Christmas, the busiest time of the retail year. By Christmas Eve the contracts for the $100 million deal were signed. Dillard’s took over the ten stores the following March 1. “Every acquisition of Dillard’s has been successful,” says retailing analyst Walter Loeb of Morgan Stanley. “They simply do not overpay, and they make the acquired stores work.”
And they do it fast. When the company acquired the D.H. Holmes chain of 18 department stores headquartered in New Orleans in May, dozens of Dillard’s employees descended on the stores, which had already been closed, on a Friday afternoon. Over the weekend they installed all new point-of-sale registers, which tie into an IBM mainframe in Little Rock. Existing merchandise was tagged with bar-coded labels, allowing Dillard’s to capture sales information at the checkout registers. By Monday morning the stores were open for business.
“Having constant sales is just like taking dope,” says Dillard. “You start with 10% off, then it’s 15%…”
If Dillard has turned over to his sons more of the day-to-day running of the company—as he says he has—it certainly isn’t evident by his schedule. He spends three or four days each week checking out some of the company’s 167 stores, and between now and the end of the year will manage to visit almost every one. Dillard usually boards one of the company’s two eight-passenger jets, flies out of Little Rock around 8 A.M., and isn’t back home until 8 or 9 P.M. Says wife Alexa: “William is terribly tired when he gets home. Often he’ll just have dinner and then go to bed early. But I know he loves to be out there.”
On a brutally hot afternoon in late August, Dillard decides to visit the store in Little Rock’s Park Plaza Mall. No jet needed here. Just a 15-minute drive from headquarters and he is in front of the white modern-looking store, pointing to an unlit Dillard’s sign. “I don’t like that,” he says quietly. Dillard feels that first impressions count, which is why he insists his stores be immaculate, with soft music playing in the background. Floors are a rich, clear wood; the decor features gray and peach marble, brass details, and beautiful plants and flower arrangements.
Strolling through the men’s department is a visual testament of one of Dillard’s favorite axioms: You can’t sell from an empty wagon. Dozens of rows of neatly hung pants and racks of sweaters and sports jackets are clearly marked with little signs indicating manufacturer and price. Dillard’s carries enough merchandise so that a customer rarely has to walk away empty-handed because he couldn’t find the right size or color.
Don’t expect to find many items marked down, however. “Having constant sales is just like taking dope,” says William Sr. “First you start with 10% off, then it’s 15%, and then you have to go up to 25%. We price our goods fairly every day to give good value. I don’t want to sell a Hartmarx suit one week for $500 and have a customer come in the next week and see it selling for $369.99. People don’t like that, and you don’t build loyalty with a customer that way.”
Soon something catches Dillard’s eye. Over in the corner by the dressing room is a stack of empty cardboard boxes. Most customers probably wouldn’t notice it, but it bothers him. So does a rack of ladies’ blouses that aren’t hung up just right. And upstairs, where the electronic equipment is sold, he hates to see the rows of televisions tuned to different channels. Says he: “If I was with a store manager right now, I’d point these things out.”
No store manager accompanies Mr. Dillard—he does not invite people to call him Bill or even William—yet employees all seem to know who he is. Many approach him and shake his hand, some rather timidly. But near the furniture department a woman in a red dress strides up to him, shakes his hand with bold enthusiasm, and tells him that she just joined the company and is so happy to meet him in person.
“I doubt that woman in the red dress is very good at her job,” he says later. “She just struck me as a little too pushy, and I suspect she’ll be that way with customers. I don’t like that.” He then adds, “The best employees are those who started with the company and worked their way up. I don’t like to see a resume with a lot of different jobs on it. To me it means that person has no loyalty.”
“Daddy has the classic personality of an entrepreneur,” says Bill, who alternates between referring to his father as William and Daddy, depending on where they are. In an office with brother Alex at the end of the day, Bill says he is consulting with his father less frequently about the decisions he makes, an obvious progression for a man who seems destined to be CEO. “Fifteen years ago my father would be in on every decision Alex and I made. Now he just hears about them,” Bill says. He quickly adds, “William drives the business. We might be able to keep him from doing something we didn’t agree on, like making an acquisition we just didn’t feel was right, but we could never get him to do something if he didn’t want to.”
Dillard says he likes that arrangement just fine and has no desire—or intention—to step down. “I really don’t have any hobbies, and to be quite honest I don’t know what I’d do all day,” he says. Every September he and Alexa go fishing in Alaska for a week, and in the spring he goes to Costa Rica to fish with a group of friends, leaving his wife home. He explains: “It’s too primitive for her.”
But occasional fishing trips are hardly enough to entertain a man who has been CEO for five decades. He does not have to worry about keeping the business in the family, and not just because of the two classes of stock and the raring-to-go second generation. Bill’s oldest son, William III, a freshman at the University of Texas, is interested in learning about the company. And nine other grandchildren could also have careers in the company if they choose. “If William retired, he would not live long,” says his wife. “I really believe that. It’s sad but true.”
Not to worry. Mr. Dillard still has 166 stores that need to be visited.
