Dillard's 2008 Annual Report Download - page 8

Dillard’s exclusive brands/private label merchandise program allows us to control quality and consistency
of merchandise across seasons and items such that consumers know when they buy our exclusive brands that they
are purchasing high quality, consistent, fashionable merchandise at a reasonable price. Such perception clearly
furthers our reputation as an upscale department store.
We have made a significant investment in our trademark and license portfolio, in terms of design function,
advertising, quality control, manufacturing process and quick response to market trends in a quality
manufacturing environment. Dillard’s trademark registrations are maintained for so long as Dillard’s maintains
the exclusive right to use the trademarks on the listed products.
Our merchandising, sales promotion and store operating support functions are conducted primarily at our
corporate headquarters. Our back office sales support functions for the Company, such as accounting, product
development, store planning and information technology, are centralized.
We have developed a knowledge of each of our trade areas and customer bases for our stores. This
knowledge is enhanced through regular store visits by senior management and merchandising personnel and
through the use of on-line merchandise information and is supported by our regional merchandising offices. We
will continue to use existing technology and research to edit assortments by store to meet the specific preference,
taste and size requirements of each local operating area.
Certain departments in our stores are licensed to independent companies in order to provide high quality
service and merchandise where specialization, focus and expertise are critical. The licensed departments vary by
store to complement our own merchandising departments. The principal licensed departments are fine jewelry
and an upscale women’s apparel vendor in certain stores. The terms of the license agreements typically range
between three and five years with one year renewals and require the licensee to pay for fixtures and provide its
own employees. We regularly evaluate the performance of the licensed departments and require compliance with
established customer service guidelines. The licensee for the fine jewelry department recently announced their
intention to cease operation of all licensed outlets in 2009.
GE Consumer Finance (“GE”) owns and manages Dillard’s proprietary credit cards (“proprietary cards”)
under a long-term marketing and servicing alliance (“Alliance”) that expires in fiscal 2014. GE establishes and
owns proprietary card accounts for our customers, retains the benefits and risks associated with the ownership of
the accounts, provides key customer service functions, including new account openings, transaction
authorization, billing adjustments and customer inquiries, receives the finance charge income and incurs the bad
debts associated with those accounts. Pursuant to the Alliance, we receive on-going cash compensation from GE
based upon the portfolio earnings. The compensation earned on the portfolio is determined monthly and has no
recourse provisions. Further pursuant to this agreement, we have no continuing involvement other than to honor
the proprietary cards in our stores. Although not obligated to a specific level of marketing commitment, we
participate in the marketing of the proprietary cards and accept payments on the proprietary cards in our stores as
a convenience to customers who prefer to pay in person rather than by mailing their payments to GE.
We seek to expand the number and use of the proprietary cards by, among other things, providing incentives
to sales associates to open new credit accounts, which generally can be opened while a customer is visiting one
of our stores. Customers who open accounts are rewarded with certificates for discounts on later purchases.
Proprietary card customers are sometimes offered private shopping nights, direct mail catalogs, special discounts
and advance notice of sale events. GE has created various loyalty programs that reward customers for frequency
and volume of proprietary card usage.
Our earnings depend to a significant extent on the results of operations for the last quarter of our fiscal year.
Due to holiday buying patterns, sales for that period average approximately one-third of annual sales.
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