The Economy

A Great Run

James Freeman looks back on his long career as finance chief of Dillard’s. An Interview with James I. Freeman, SVP & CFO, Dillard’s.
Edward TeachFebruary 26, 2015
A Great Run

In January of 1988, James Freeman was working at the CPA firm he headed when he got a phone call from William Dillard, founder and CEO of the Little Rock, Arkansas-based department store chain that bears his name. Dillard’s was the firm’s largest client, and the founder wanted Freeman to “come over and talk about going to work for him,” Freeman recalls. After meeting with Dillard, “I went home and worked all weekend on how I was going to explain to him that I didn’t want to leave public accounting,” he says.

The following Monday, Freeman went back to see Dillard. He had just launched into his prepared speech when Dillard interrupted him. “He said, ‘You don’t understand — you’re coming over here,’” says Freeman, laughing at the memory.

So Freeman joined Dillard’s as its chief financial officer on February 1, 1988. Twenty-seven years later to the day, he is retiring. That will end his unofficial reign as the longest-serving CFO of a Fortune 500 company.

The 7 Habits of Highly Effective CFOs

The 7 Habits of Highly Effective CFOs

Download our whitepaper to discover the technical and behavioral skills needed to lead your business forward.

Not that he’s cutting all of his ties to the upscale retailer, which operates 278 stores in 29 states and an online store at (total fiscal 2013 sales: $6.5 billion). Freeman will remain a director and a member of the board’s executive committee, “so I’ll certainly be very interested in the company’s welfare,” he says. “But I don’t want to be one of those people who hang around and interfere.”

Recently, Freeman, who turned 65 in August, shared some of the highlights of his career at Dillard’s with CFO.

You had never worked as finance chief of a public company until you joined Dillard’s. What was the transition like?
When I came to Dillard’s, it was right after the stock market crash in ’87. So things were still a little shaky. Of course, it was a much simpler time. The transition from public accounting to the company was not nearly as difficult as it would probably be today. The degree of complexity that we now face in so many areas just didn’t exist then.

Like Sarbanes-Oxley, for example.
Right, Sarbanes-Oxley and all the different forms of regulation that we face today, with the SEC being a lot more active, and so on. And then you have the whole area of shareholder activism, which has certainly changed the landscape.

At least you knew the company well, having done audit and tax work for it.
There were a lot of things I had to learn. I knew a lot about the due diligence process and about business combinations, but I did not have public-company experience. I had a mentor here, Ray Kemp, who had come from the same accounting firm 20 years before. He was really helpful in getting me up to speed quickly in areas like dealing with the Street.

How big was Dillard’s at the time?
We had just crossed two billion dollars in volume, and we were growing rapidly. We did an acquisition almost every year for the first five or six years I was here, sometimes two acquisitions a year. They were generally small companies doing $100 million, $200 million of volume, so we were able to convert them to our systems and integrate them into our company pretty rapidly. So up through the early ’90s, we were assimilating targets, and that was quite accretive to the earnings and growth of the company.

We were kind of a Wall Street darling for a few years, but in the mid-1990s we started not doing as well. We weren’t growing as fast. Then we acquired Mercantile Stores in 1998. It was much larger than anything we had acquired before, about $3 billion in volume.

Did that deal turn things around?
Well, we really struggled with that acquisition. Their stores were in similar markets and in similar malls, and they sold some of the same merchandise. But we really hadn’t realized just how different their philosophy was. Dillard’s has traditionally been a service-oriented, fashion-forward operation. Mercantile was really more of a promotional vehicle, if you will, with a merchandising strategy similar to what Penney’s was.

We thought we would take the best of Mercantile and the best of Dillard’s and combine the two, but that was a lot easier said than done. So we ended up having to turn Mercantile into what we were, at incredible pain and cost.

Speaking of pain, the last recession must have been hard on Dillard’s, too.
Yes, it was. We thought we were really lean and the most efficient operator in the industry. And clearly we had been, 10 years before that. But I suspect that we had gotten a little less efficient than we should have been. So we focused on taking cost out of the business.

One of the best things we did was that we decided we were going to take cost out of everything that didn’t affect the customer. On anything that didn’t affect the customer, you were only allowed to spend what you absolutely had to.

We needed to reduce head count by a lot, and we did, but we raised the pay rates for the people we kept. Everyone who deals with customers here is paid based on their sales, either directly or indirectly. We came to realize that if you paid people more and expected more from them, the best people would naturally rise [to the top]. The amazing thing is that even with substantial reductions in head counts, our customer service ratings actually improved, and we were already pretty good. By the time we got through that process we were starting to be ranked number one in customer service. That has probably contributed as much as anything to the success we’ve enjoyed since 2010.

The other thing we did was to focus on being more high fashion and selling better goods. The combination of better goods with better customer service has been very good for us.

How many stores did you close?
We closed a good many. We would only close a store if it was losing money and we thought we couldn’t fix it. We came to realize that in many markets where we had multiple units, there was a benefit that [accrued] to the better stores in the market if you closed a weaker store. So we started looking at the impact [of a closure] on the whole market as opposed to just the impact on that store.

Retail chains run the risk of cannibalization when there are too many stores in a given area.
Yes. One thing that Nordstrom has proven is that if you have a powerful store with powerful brands and really good service, you’ll attract customers from a lot farther away than people traditionally thought.

Shopping malls are falling out of favor, with the number of dead malls on the rise and more and more people preferring to shop on the Internet. How is Dillard’s adapting to this?
I think the big, powerful, good malls will stay that way for a long, long time. But what we were seeing even before things slowed down in 2010 was that for our type of retailing, lifestyle centers were often a better vehicle than an enclosed mall. We think a lifestyle center that offers a combination of entertainment, restaurants, and really good retail is the best brick-and-mortar situation right now.

What about the Internet?
Clearly the Internet is having an enormous impact on our business, and our Internet business has grown rapidly. We have taken a different approach in that we want it to be profitable. We didn’t want to go just for volume and worry about making money later, as others have done. We view the Internet as part of a multichannel approach.

How would you sum up your career at Dillard’s?
It’s been a great career for me. It gave me an opportunity to do so many things that I would have never been able to do otherwise—make presentations on Wall Street, deal with investment banks and big law firms, and everything else over the years. It’s been a good run. And, you know, I love the trajectory we have the company on now. I hope to see it continue that way for a long time.