Dillard's considers its vendors to be its partners. We build our sourcing guidelines based on a partnership strategy motivated by a common commitment to maintain the integrity of our standards, whether they are production, legal or ethical. While Dillard's recognizes that there are different legal and cultural environments in which vendors operate throughout the world, the Dillard's Social Accountability Policy (the "Policy") sets forth the minimum requirements that all private label vendors from whom Dillard's imports merchandise must meet in order to do business with Dillard's.
The Policy is based on the International Labor Organization Declaration on Fundamental Principles and Rights at Work (adopted 1998). The Policy provides the foundation for Dillard’s ongoing evaluation of vendor’s practices and our continuing relationship with such vendors. The standards set forth in the Policy are intended to convey the minimum standard for doing business with Dillard’s. Dillard’s will apply more stringent standards in selecting and partnering with its vendors/suppliers in appropriate circumstances.
In addition to publication and communication of the Policy to its direct import supplier base, Dillard’s conducts factory social compliance assessments (“Assessments”) in order to ensure compliance therewith. The following information and statistics describe Dillard’s FY2014 direct import supplier base for private label merchandise, the inspections conducted thereon, the findings of those Assessments and the follow up conducted on the factories.
Dillard’s intends to update this report periodically; we may add or modify elements to the report. We will continue to work with shareholder/stakeholder groups to make the report more meaningful and relevant to our changing environment.
Dillard’s Compliance Department is responsible for ensuring that the Policy is communicated to Dillard’s vendors, that appropriate employees are trained, and that the required audits are conducted for compliance. Dillard’s Vice President of Operations and the Legal Department monitor compliance and continually address issues as they arise.
Dillard’s uses 2 business models for purchasing private label merchandise from overseas vendors. The vast majority (96%) of Dillard’s merchandise is purchased through various buying agents (“Agent(s)”) operating in the country or territory where the factories are located. In some instances, Dillard’s purchases merchandise directly from the factory. Those instances are referred to herein as “Direct- Direct” purchases.
In FY2014 Dillard’s received merchandise from 341 factories located in 17 different countries. Dillard’s purchased Direct-Direct from 13 factories. Dillard’s purchased merchandise from the remaining factories using the services of its Agents. Dillard’s strives to ensure that its active factories reflect only those factories from which Dillard’s intends to place orders. Thus, the factories reported on herein are those factories from which Dillard’s imported merchandise in FY2014.
Dillard’s Policy is to conduct yearly Assessments of each direct import supplier from which it receives
merchandise. In addition, Dillard’s does not tolerate, and conducts factory Asessments to ensure against:
• Any incidents of human trafficking and slavery in the supply chain;
• The use of forced labor, whether in the form of prison labor, indentured labor, bonded labor or otherwise;
• The use of child labor and the performance by children of hazardous work in conflict with the laws of the country of manufacture;
• Subjection of workers to physical, verbal, sexual or psychological harassment or abuse in connection with their employment;
• Other issues as defined by our Policy as directed from time to time.
The Assessments minimally require a meeting, tour, private worker interviews and a Corrective Action Plan (“CAP”) for any non-compliance findings. The frequency and manner in which the Assessments are conducted vary depending on the results of previous Assessments and CAPs, the country of manufacture and whether the merchandise is ordered through an Agent or Direct-Direct. Assessments are conducted all over the world by selected third party auditors (“Audit Firm(s)”). All of the Audit Firms conduct Assessments that meet or exceed Dillard’s social accountability requirements.
The Audit Firms are utilized for Assessments by many other companies in the industry. All Audit Firms operate within a strict code of ethics and some will periodically send out mystery auditors to perform services. Finally, many of them randomly follow up on their auditors by calling the factories to ensure that the auditors conducted themselves in accordance within the Audit Firm’s code of conduct.
In most cases where Dillard’s orders merchandise through an Agent, the Agent is responsible for retaining an Audit Firm to conduct Assessments in accordance with Dillard’s Policy and to report the results to the Agent and Dillard’s. Where Dillard’s orders merchandise Direct-Direct, Dillard’s retains the Audit Firm to conduct the Assessments and the results are reported directly to Dillard’s.
Dillard’s maintains a program that enables its factories to receive an Assessment that is valid for 1 or 2 years if certain criteria are met. Last year, one (1) factory qualified for the 2 year Assessment. This program provides clear guidance on Dillard’s risk of compliance determinations and weights to establish the appropriate follow‐up. Exempting low risk, compliant factories from annual Assessments allows Dillard’s to effectively deploy its social accountability resources. Dillard’s conducted 323 factory Assessments for imported merchandise in FY2014. Dillard’s allows a factory to waive the Assessment if they submit an independent third party audit report that was conducted within the last 12 months.
Dillard’s partners with its suppliers to create CAPs that are monitored by third party social compliance teams. Dillard’s and its inspection firms work with vendors and factories to establish and monitor CAPs in an effort to bring each factory into compliance where non-conformance is found. Dillard’s only terminates business relations as a last resort. However, Dillard’s reserves the right to terminate business relations for any violations of its Policy.
Dillard’s completed 323 Assessments in FY2014. However, Dillard’s did not place orders with 66 of the audited factories last year. Therefore, these findings are focused on the 257 factories with which Dillard’s did place orders.
Of the 257 factories evaluated, 32 factories achieved no outstanding issues and 42 factories achieved an acceptable rating with minor opportunities for improvement. Therefore, 74 factories scored acceptable evaluation without need for further follow up. The remaining 183 (71%) factories required a CAP with detailed tasks and completion dates. There were 169 factories that successfully completed their tasks as scheduled on their first CAP. The remaining 14 factories were assigned a second CAP, and all but 5 factories completed their second CAP as scheduled. Of the last 5 factories, 3 factories were canceled due to poor Assessment scores and a bribery incident. The last 2 factories completed the third CAP to an acceptable level as scheduled.
Assessments revealed the following areas of concern with the appropriate follow up actions documented in CAPs. Overall in FY 2014, there were 1027 non-compliance incidents compared to 659 non-compliance incidents cited in FY 2013. The increase in overall incidentswas mainly due to the additional 14 Fire and Building Safety questions. The following were the top non-compliance categories:
• health and safety - 461 issues (45% of overall issues)
• wages and benefits - 195 issues (19% of overall issues)
• working hours - 178 issues (18% of overall issues)
• the remaining 193 issues were spread over the other 7 areas evaluated
Dillard’s trains its associates responsible for direct imports of merchandise on their obligation to comply
with Dillard’s Social Accountability Policy, as well as other policies relevant to purchasing and importing merchandise.
In FY2015 Dillard’s will continue to focus on completion of CAPs, communication of expectations to its
vendors and Audit Firms and refinement of its procedures to evaluate risk and allocate resources accordingly. Dillard’s is also continuing to evaluate safety protocols in conjunction with its agencies, Audit Firms and industry groups.