Social Accountability Report

I. General Background and Social Accountability Policy

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 published on Dillard’s website and can be accessed at Social Accountability Policy. Also, Dillard’s provides its Policy and other appropriate guidance on its expectations in writing to its employees, suppliers, vendors and factory managers.

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 assessments (“Assessments”) to ensure social compliance. The following information and statistics describe Dillard’s FY2022 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. The statistics provided relate to suppliers of private label merchandise imported by Dillard’s in FY2022.

Dillard’s intends to update this report periodically; we may add or modify elements to the report. We will work with shareholder and 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.

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II. Dillard's Direct Import Supplier Base

Dillard’s uses two strategic import business models for purchasing private label merchandise from overseas vendors. The vast majority (93%) of Dillard’s merchandise is purchased through various buying agents (“Agents”) 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 FY2022 Dillard’s received merchandise from 237 factories located in 21 different countries of which Dillard’s purchased Direct-Direct from 16 factories (7% percent overall). Dillard’s purchased 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. The factories reported on herein are those factories from which Dillard’s imported merchandise in FY2022.

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III. Dillard's Method of Assessing its Supplier Base

Dillard’s Policy is to conduct yearly Assessments of each direct import supplier from which it receives merchandise. Dillard’s does not tolerate, and conducts factory inspections 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;
  • The 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 evaluations 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 Firms”). All of the Audit Firms conduct Assessments that meet or exceed Dillard’s social accountability requirements.

The Audit Firms are utilized by many other companies in the industry. Additionally, all of them 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 conduct themselves in accordance with 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 the initial and follow up Assessments in accordance with Dillard’s Policy and 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 initial and follow up Assessments and report the results directly to Dillard’s.

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IV. Number of Direct Import Suppliers Assessed

Dillard’s maintains a program that enables its factories to receive an Assessment that is valid for 1 or 2 years if specific criteria are met. Twenty factories qualified for 2-year Assessments and were therefore exempt from the yearly Assessment audits. This program provides clear guidance on Dillard’s risk of compliance determinations and ratings to establish the appropriate follow‐up measures. Exempting low risk yearly compliant Assessments, which allow Dillard’s to deploy its social accountability resources efficiently. Dillard’s conducted 284 factory Assessments for imported merchandise from factories in FY2022. Dillard’s allows a factory to waive the Assessment if they submit an approved independent 3rd party audit report that was conducted within the last 12 months.

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V. General Findings of Assessments

Dillard’s partners with its suppliers to create CAPs that are monitored by 3rd party social compliance audit teams. Dillard’s completed 284 Social Assessments in FY2022; however, we did not place purchase orders in 47 of the audited factories for that year. Therefore, our findings were focused on the remaining 237 factories that Dillard’s did place orders in FY2022.

Dillard’s Audit Firms evaluated 183 factories in FY2022. The remaining 53 factories were audited by other 3rd party service providers deemed acceptable:

  • Factories achieved level 1 rating = 29
  • Factories achieved level 2 or 3 rating = 142
  • Factories achieved level 4 rating = 12
  • Factory is at level 5 = 0

Note: A level 1 rating is the best possible rating a factory can achieve and level 5 is the lowest rating for a factory.

Factories with ratings of 2 or higher were required to follow up with a CAP that includes completion dates. One hundred eighty-one factories successfully completed their first CAP as scheduled. The remaining 17 factories were assigned a second CAP and completed the second CAP to an acceptable level as scheduled.

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. It is Dillard’s desire to establish continuous improvements in factory conditions. 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.

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VI. General Descriptions of Issues Found in Factories

Assessments revealed the following areas of concern with the appropriate follow up actions documented in CAPs. Overall, in 2022, there were 462 non-compliance incidents compared to 590 non-compliance incidents cited in 2021.

The following are the top non-compliance categories:

  • Health and Safety —189 issues, 41% overall
  • Wages and benefits —84 issues, 18% overall
  • Working hours —129 issues, 28% overall
  • Other —60 issues, 13% were spread out in other areas
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VII. Internal Training

Dillard’s trains its associates responsible for direct imports of merchandise on their obligation to comply with Dillard’s Social Accountability Policy and other policies relevant to purchasing and importing merchandise.

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VIII. Dillard’s Goals for FY 2023

In 2023 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 factory safety protocols in conjunction with its agencies, Audit Firms and industry groups.

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IX. Conclusion

Dillard’s will continue its efforts to ensure that its policies and assessment of its supplier base are in line with industry standards.

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