Suit Undresses Dillard?s Inc.

Net sales for Dillard’s Fayetteville operation were down 1.78 percent from 1998 to 1999. But the net income for the department store chain’s two Northwest Arkansas Mall stores was still $1.3 million, or good enough for sixth best among the 75-80 stores in Dillard’s Arkansas Division.

The division also takes in the Little Rock company’s stores in Memphis, Jackson, Miss., and Shreveport, La., and its surrounding cities.

Companywide, Dillard’s Inc. made $103 million in 1999, down a percent from $111 million a year earlier. A rare glimpse at the privately held and quietly run company’s financial information was made possible by an age discrimination law suit pending in Little Rock’s U.S. District Court.

Former McCain Mall store manager Dorman Hartley, who was fired in August 1999, is suing Dillard’s Inc. because he said the only reason the store fired him from his $92,000 a year job was because of his age — 64 at the time of his termination.

His last full year with the company, 1998, saw the McCain Mall location reach sales of $42.8 million. During all of 1999, the store grossed only $42 million. That apparently was not good enough.

Top executives for the department-store chain said they fired Hartley partly because sales had been in a tailspin since 1995, when they reached $43.7 million.

Hartley said he generated $58 million in profits during his 10-year tenure. His suit seeks to get his old job back plus back pay and other unspecified damages. The trial is scheduled to start Sept. 24.

Age discrimination claims are nothing new for Dillard’s. Between 1995 and May 2000, 23 former employees from the company’s Arkansas division filed age discrimination claims with the Equal Employment Opportunity Commission.

In 1995, Ronald Grossman, a former operations manager at the Park Plaza Dillard’s in Little Rock, received a $263,568 judgment against the company after alleging he was fired because of his age, 52. Dillard’s appealed, to the 8th Circuit Court of Appeals and won.

But the wealth of Dillard’s financial information available in the latest case make’s Hartley’s suit unique. Dillard’s spokeswoman Julie Bull didn’t return a call for comment.

One report filed in the case shows the Park Plaza store in is Dillard’s crown jewel in the area. In 1998, its sales were $74 million, although that was a 2.18 percent decrease from its 1997 sales of $76 million.

The same report shows that sales in the Mall of Memphis store were dwindling rapidly. In 1995, it recorded $36.8 million in sales. Three years later, sales were down to $24 million — a third of Park Plaza’s sales even though the Mall of Memphis store is larger.

As a result, Dillard’s has announced it will close the Mall of Memphis store by February.

McCain Mall

Both Burton Squires, Dillard’s corporate vice president of stores covering the Arkansas and St. Louis divisions, and Thomas Patterson, Hartley’s district manager, said they warned Hartley several times after 1998 that he would be replaced if sales and profit at the McCain Mall store didn’t improve and if inventory shortages weren’t curtailed.

Hartley, who had planned to continue working for several years, said he did his best to improve the store. But a number of factors kept the store from returning to the banner sales levels of 1995, he said in a deposition given for the lawsuit on Nov. 14, 2000.

Among them were enlarged and remodeled competitors within the mall and the loss of Franke’s Cafeteria and a movie theater, primary traffic-builders on the first floor.

But the biggest hit Dillard’s took didn’t come from within the mall. Several stores, including Goody’s and Carnival Shoes, joined an already crowded market and began jostling for customers in the 1990s.

“We had an awful lot of competition in the McCain area over the past four or five years that other areas in the immediate area have not … experienced,” Hartley said. “No. 1 and No. 2 electronics retailers, half a mile from the mall, opened up and killed the electronics business in the McCain Mall. Big stores like Stein Mart opened up, and S and K opened up a new store just over in Lakewood Village.”

Target also opened a store nearby in the early 1990s and has made a strong impact since 1995, he said.

Still, with the population growth in Sherwood and Cabot, the McCain store should have done better, Patterson said in court papers.

But Charles Venus, who has a doctorate in marketing and economics, disagrees.

Hartley’s analysis of the market situation of McCain Mall and the Dillard’s McCain Mall store reflect the broader market situation of malls in general and department stores in particular, Venus said in an affidavit filed on behalf of Hartley.

“As a general trend, malls are losing market share to discount chains and ‘big boxes,’ and department stores, which anchor malls, are losing market share to non-mall competition,” Venus said. “This trend started several years ago and continues to the present.”

Hartley’s struggles were further compounded by the store’s failure to retain assistant store managers, he said.

“In my 10-year-period at Dillard’s, I had the most assistant store managers of any store,” Hartley said. “I had 10, and they were all trained and most of them were promoted to store manager … We were used as a training store, a training and development store for assistants.”

Patterson said in his affidavit that the turnover rate was terrible.

“In 1998, the McCain Mall store had the highest turnover rate of area sale managers of any store in my district,” he said.

The store had eight area sales manager positions, and from January 1998 to August 1999, nine had resigned.

Last Straw

McCain Mall also had a critical problem with shortages from 1996-2000.

Dillard’s conducts biannual inventories of all of its stores in January and July.

In 1996, according to Patterson’s affidavit, the McCain Mall store couldn’t account for $58,387 in inventory, surmising that the inventory was stolen by either employees or customers.

It got worse. In 1997, the shortage for the year was $87,500, and the next year it was $470,841, Patterson said.

For the first half of 1999, the store was short $93,800.

“While an improvement over the previous inventory, I did not consider it satisfactory,” Patterson said.

However, Hartley said one of the managers told him that the January 2000 report showed the store short $672,000 for the year.

Hartley’s attorney, Morgan “Chip” Welch of Little Rock, said in court records that there is no evidence to show Hartley could have avoided the shortages.

Patterson and Squires said the poor appearance of the store was the last straw for Hartley.

In August 1999, Squires toured the store while Hartley was on vacation.

“I observed, as I had the year before, that several areas of the store were overcrowded, while other areas were understocked,” Squires said. “Moreover, problems within the store about which [Hartley] had been counseled continued to exist. The overall appearance of the store, including housekeeping and presentation of merchandise, was unkempt.”

Because of that and based on the problems with sales, profits and staffing, Squires and Patterson made the decision to fire Hartley.

No ‘Lone Ranger’

Hartley said his store wasn’t the only one with decreased sales. Sales at all of the stores in Patterson’s district declined from 1996 until 2000. Twelve of the 20 stores reported lower net incomes from February-June 1999 than they did in the same period in 1998.

The Park Plaza store went from $4.1 million in net income for that five-month period in 1998 to $3.97 million in 1999.

Part of the decrease in sales was blamed on Dillard’s $2.9 billion purchase of Mercantile Stores Co. of Fairfield, Ohio, in 1998.

Patterson said some of the stores were “tremendously affected by the acquisition.”

The Dillard’s in the Northpark and Metrocenter malls, both in Jackson Miss., saw their net income fall from the February-June period in 1998 to the same period in 1999. Patterson blamed those decreases on the acquisition of Mercantile-owned Gayfer’s department store located in the same malls as the Dillard’s stores.

“We bought another entire building of merchandise,” Patterson said. “We disposed of that merchandise at tremendously cut-rate prices.”

The Memphis Dillard’s market actually lost money between 1998 and 1999.

Oak Court Mall in Memphis went from $410,100 in net income from February-June 1998 to a net loss of $324,400 during the same period in 1999.

Patterson said the Memphis market is “extremely tough.”

“The Oak Court store was adversely affected by a big, huge store [at Wolfchase Galleria] opening up in the east part of Memphis,” he said.

And the Mall of Memphis store is in a declining mall, he added.