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Dillards to shift focus to private-label goods

LITTLE ROCK, AR -Citing thinning margins and worsening returns on some of its branded merchandise, Dillard's will begin to switch its emphasis to more profitable private-label goods, as discussed in an investors' conference call last week.

"We were amazed ourselves at how much better the private-label numbers were. And the numbers will continue like that," said Bill Dillard, ceo. The spread between private-label product and product from "mega vendors" widened in the third quarter relative to what it had been in the first six months, he said.

It had previously reported that the gross margin performance in all private brands exceeded margins of branded vendor sources by 4.8 percent of sales during the second quarter. Private-label constitutes 15 percent of the whole store and 18 percent of the home department.

The company is also in the midst of refocusing its entire home strategy.

The direction to more private-label merchandise was clearly enunciated at that time with Dillard saying "private label has performed very nicely but it isn't a big enough part of our mix."

"It was a continuation of a trend," Dillard said about the branded merchandise concern, admitting that "we kind of had our heads in the sand a little bit on how this problem was coming at us ... We knew the business hadn't been good and some of the margins have been problems starting last year. But the truth of the matter was we've been having worse returns on these guys for a good period of time and trends have been going the wrong way; and if anything we were slow to react to it. We've reacted to it for next year."

For this year, however, the company "unfortunately had a lot of goods in the pipeline from these people ... more goods in the pipeline this year than was justified, and we paid the price for it."

So the company has worked on bringing inventories down instead of up, which Dillard said was a way to camouflage problems. "We've been guilty of that."

In August, Dillard's announced a consolidation of its home furnishings efforts into one entity based in its Dallas/Ft. Worth metroplex vs. the five separate buying and merchandising entities it previously had.

The Home Merchandising Division, headed by David Doub, reverses the company's position of the last decade, which saw home furnishings purposely shrink from 11.9 percent of total store in 1994 to 9.3 percent of the total in 1999.

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