Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

If you've been thinking of Dillard's Inc. as a beleaguered department store, an activist investor suggests it's time to change your perspective.

"Dillard’s is essentially an underleveraged real estate company that is masquerading as a low productivity retailer," said Jeffrey Pierce, a managing partner at Snow Park Capital Partners, in an email to Bloomberg News's Scott Deveau.

Snow Park has taken a stake in Dillard's and is making the case for it to re-evaluate its real estate portfolio, perhaps by selling off valuable property or leasing it out to tenants willing to pay hefty rents.

Dillard's, which has about 290 stores largely located in the South and Midwest, has been in the retailing wilderness recently. 

Tough Times
Dillard's, like many department stores, is stuck in a sales rut
Source: Bloomberg

The chain is getting whacked by the same hammers as many of its department-store rivals. Inc. is grabbing serious market share in the apparel category, and TJX Companies Inc. has done a great job of luring shoppers to its T.J. Maxx and Marshalls off-price emporiums.

So Snow Park has the right idea: Dillard's ought to look for cash wherever it can, so it can pay down debt or invest in making itself relevant in the digital era. 

Pushing for Change
Dillard's stock fell after an investor said it was urging the chain to re-assess its real-estate holdings
Source: Bloomberg
Intraday times are displayed in ET.

Macy's Inc. has had some success recently with such a strategy, getting a serious cash-flow benefit from parting with some of its real estate holdings. Macy's has said it generated $877 million from such asset sales in 2015 and 2016. 

When Macy's sold its men's store in San Francisco, for example, it got about $1,000 per square foot. When you consider that Macy's stores, on average, generate about $189 in sales per square foot, that looks like a smart play. 

That particular Macy's outpost was ultra-prime real estate, located right near San Francisco's bustling Union Square. Dillard's may not have any spaces quite as valuable, but unloading some of its holdings in upscale malls could nevertheless prove lucrative. 

Of course, trying to unlock value from retail real estate is hardly a bulletproof strategy right now. Real-estate research firm CoStar has estimated that recent store closures by Macy's and Sears Holdings Corp. alone are dumping 28 million square feet onto the market. 

There are some tenants raising their hands for space in American malls -- U.K. retailer Primark, for example, and Kidzania USA, an entertainment park for children. But, in general, businesses aren't exactly clamoring to be in malls where foot traffic is drying up. It's highly possible there won't be takers for all the space coming available. Supply and demand appear to be out of balance, and Dillard's could end up on the wrong side of that. 

Watching the outcome closely will be short sellers, who are betting heavily against a relatively small player in a troubled sector. They could get stung if Dillard's meets Snow Park's demands and shores up its business. 

Short-selling of Dillard's shares is at a record; these investors face a world of pain if the retailer unlocks value from its real estate portfolio
Source: Markit via Bloomberg

We'll find out soon enough which bets will pay off, but there's a good chance it will be the short sellers'. Even if Dillard's embraces the real-estate strategy -- and there's no guarantee it will -- it offers only the promise of short-term help. For its stock price to make big leaps, the company will have to demonstrate it has a sound plan for prospering in the digital era. So far, it hasn't done that. 

-- With assistance from Gillian Tan.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Sarah Halzack in Washington at

To contact the editor responsible for this story:
Mark Gongloff at