Friday, July 22, 2005

Mr. Dillard

Cafe Hayek: Everyday Low Prices.
When I lived in St. Louis, the big battle between department stores was between Dillard's and Famous-Barr. Famous-Barr had sales every two weeks. You would see their multi-colored circulars in the newspaper offering "specials." At Dillard's, there were basically no sales. Their average prices were lower while the prices at Famous-Barr would be lower on those items that were on sale. Famous-Barr made money on people buying the non-sale items. Or at least that's how I remember it.

I once got to hear Mr. Dillard, the CEO of Dillard's explain why his strategy was better. The basic point was that Famous-Barr would be thronging with customers when their sales were on and relatively deserted when prices were high. But the sales staff couldn't be adjusted to meet those customer flows—it was too expensive to be constantly altering the size of the staff. So basically Famous-Barr always had either too many employees or too few.