Dillard's 2009 Annual Report Download - page 8

The retail merchandise business is highly competitive, and that competition could lower revenues, margins and
market share.
We conduct our retail merchandise business under highly competitive conditions. Although we are
a large regional department store, we have numerous competitors at the national and local level that
compete with our individual stores, including specialty, off-price, discount, Internet and mail-order
retailers. Competition is characterized by many factors including location, reputation, fashion,
merchandise assortment, advertising, price, quality, service and credit availability. We anticipate intense
competition will continue. If we are unable to maintain our competitive position, we could experience
downward pressure on prices, lower demand for products, reduced margins, the inability to take
advantage of new business opportunities and the loss of market share.
Changes in economic, market and other conditions could adversely affect our operating results.
The retail merchandise business is affected by changes in international, national, regional, and
local economic conditions, consumer preferences and spending patterns, demographic trends, consumer
confidence, consumer credit availability, weather, traffic patterns, the type, number and location of
competing stores, and the effects of war or terrorist activities and any governmental responses thereto.
Factors such as inflation, apparel costs, labor and benefit costs, legal claims, and the availability of
management and hourly employees also affect store operations and administrative expenses. Our ability
to finance new store development, improvements and additions to existing stores, and the acquisition of
stores from competitors is affected by economic conditions, including interest rates and other
government policies impacting land and construction costs and the availability of borrowed funds.
Current store locations may become less desirable, and desirable new locations may not be available for a
reasonable price, if at all.
The success of any store depends substantially upon its location. There can be no assurance that
current locations will continue to be desirable as demographic patterns change. Neighborhood or
economic conditions where stores are located could decline in the future, thus resulting in potentially
reduced sales in those locations. If we cannot obtain desirable locations at reasonable prices, our cost
structure will increase and our revenues will be adversely affected.
Ownership and leasing of significant amounts of real estate exposes us to possible liabilities and losses.
We own the land and building, or lease the land and/or the building, for all of our stores.
Accordingly, we are subject to all of the risks associated with owning and leasing real estate. In
particular, the value of the assets could decrease, and their operating costs could increase, because of
changes in the investment climate for real estate, demographic trends and supply or demand for the
use of the store, which may result from competition from similar stores in the area, as well as liability
for environmental conditions. If an existing owned store is not profitable, and we decide to close it, we
may be required to record an impairment charge and/or exit costs associated with the disposal of the
store. We generally cannot cancel our leases. If an existing or future store is not profitable, and we
decide to close it, we may be committed to perform certain obligations under the applicable lease
including, among other things, paying the base rent for the balance of the lease term. In addition, as
each of the leases expires, we may be unable to negotiate renewals, either on commercially acceptable
terms or at all, which could cause us to close stores in desirable locations. We may not be able to close
an unprofitable owned store due to an existing operating covenant which may cause us to operate the
location at a loss and prevent us from finding a more desirable location. We have approximately
78 stores along the Gulf and Atlantic coasts that are covered by third party insurance but are
self-insured for property and merchandise losses related to ‘‘named storms’’; therefore, repair and
replacement costs will be borne by us for damage to any of these stores from ‘‘named storms’’.
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