Burlington Stores walks away from e-commerce

Discussion
Photo: Getty Images/krblokhin, Source: burington.com
Mar 09, 2020
Tom Ryan

Burlington Stores surprised some last week by announcing it is winding down e-commerce operations.

In 2009, the retailer became the first off-pricer to launch an online presence, and yet online still only represents about 0.5 percent of the chain’s sales.

On its fourth-quarter conference call week, Michael O’Sullivan, CEO, said three factors drove the decision.

First, Burlington is a “moderate off-price retailer” with an average unit retail of about $12. With e-commerce, “when you fully account for the cost of merchandising, processing, shipping, accepting returns, etc., it’s very difficult — impossible — to make it at those price points in the businesses that we compete in.”

Mr. O’Sullivan also said Burlington faced “very significant constraints” translating the in-store, off-price treasure hunt experience to an online environment.

Second, Mr. O’Sullivan said data shows that, even as e-commerce has grown over the last several years, “bricks and mortar moderate off-price retail has continued to power ahead and to gain share.” Burlington has averaged eight percent annual growth over the last three years, driven by its physical stores.

“We’re clearly taking market share. Of course, we anticipate e-commerce is going to continue to grow in many sectors of retail, but in the moderate off-price business, we believe growth is going to be driven by physical stores,” he said.

Third, Burlington has about 720 stores, far below TJX’s approximately 2,400 location count across T.J. Maxx and Marshalls, and below Ross Stores’ 1,130 as well. As such, Burlington is better positioned to focus resources on driving increased sales through existing bricks and mortar stores and by opening new locations.

TJX launched e-commerce in 2013 and saw double-digit growth in 2019. Online represented two percent of the retailer’s sales in 2018.

Ross Stores remains committed to foregoing e-commerce. On its third-quarter conference call last November, Mike Hartshorn, COO, said, “We think that the moderate off-price business, which is what we’re in, would not work in an online environment. With a $10 to $11 [average unit retail], the economics with free shipping and returns are just not financially sustainable.”

DISCUSSION QUESTIONS: Do Burlington Stores’ reasons for exiting e-commerce make sense? Does its decision say more about the challenges extending the off-price formula online or selling lower-priced goods online in general?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Know your data. Use your data. After an 11-year run, it’s smart to walk away."
"This is a shockingly naive move, repeating a mistake that many retailers have been making for more than a decade — namely being channel-centric in their thinking."
"This is one of the craziest things I’ve read lately, but I get it: not really returning for you so stop it. The old proven retail method of testing."

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24 Comments on "Burlington Stores walks away from e-commerce"


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Mark Ryski
BrainTrust

While this move may seem counter-intuitive in the connected world we live today, for Burlington it just makes sense. The “treasure hunt” category is one of the truly few concepts that simply doesn’t lend itself well to online shopping. In addition to eliminating the distraction associated with managing their e-commerce business, Burlington will avoid horrific costs associated with online retailing like managing logistics, competing with same-day delivery or processing product returns.

David Naumann
BrainTrust
David Naumann
Retail Industry Analyst
6 months 16 days ago

You are spot on Mark! It is challenging to make a profit on low-priced products with e-commerce and this was a smart decision for Burlington Stores.

Steve Dennis
BrainTrust

It’s not about online shopping. It’s about the role of online in overall customer value maximization.

Bob Amster
BrainTrust

Michael O’Sullivan is right on all three counts. Maybe he is earning what he is paid. The industry as a whole has come to preach that every strategy is for every retailer. Here is a good case to the contrary. What is a good model in stores is not by default so good in e-commerce and vice versa. Mr. O’Sullivan makes a tough decision in the face of the entire industry. Kudos to him!

Bob Phibbs
BrainTrust

Know your data. Use your data. After an 11-year run, it’s smart to walk away.

Dave Bruno
BrainTrust

I can’t argue with the decision to forego e-commerce at Burlington: the numbers don’t lie. However, I would strongly encourage Burlington Stores to invest in a dynamic, constantly updated website that announces new arrivals, new themes and seasonal assortments. Investing in web content like this could be a great way to engage and excite people and inspire them to embark on another treasure hunt inside their stores. They will save a lot of money by shutting down the commerce side of their website. In my opinion, they would do well to reinvest some of those savings into the content side of their website.

Steve Dennis
BrainTrust

They don’t appear to be using the right numbers.

Jeff Weidauer
BrainTrust

With consumer expectations for free shipping and returns, the low average transaction price, and the lack of growth online, placing a singular focus offline makes sense. But making that leap isn’t easy in today’s world, and many retailers wouldn’t have done it. Bravo Burlington.

Suresh Chaganti
BrainTrust
Suresh Chaganti
Co-Founder and Executive Partner, VectorScient
6 months 16 days ago

I applaud Burlington resisting the peer pressure. I hope this is a well thought-out and data-backed decision.

Ray Riley
BrainTrust

The move itself makes perfect sense, but how many other other components of a retailer’s online presence will Burlington forgo? As I browse the website for a treasure hunt item, can I verify that it is actually in stock and in my size prior to visiting the store? No. Can I purchase the product online with only the option of picking it up in-store? No. Will new arrivals or close-out deals be advertised or displayed on their Instagram page — with the opportunity to then convert as above? Killing off e-commerce due to the unit economics of their merchandise mix is one thing, but where does that sit within their greater strategy to delight existing customers and attract new ones?

Peter Fader
BrainTrust

Very bad move Burlington! No retailer can shut down a primary channel of distribution/interaction and live to talk about it. This is a desperation tactic, not a growth-oriented one.

The “treasure hunt” narrative is overrated. I bet that a large percentage of purchases made there are more planned/directed than the result of serendipitous browsing. And I suspect that those purchases are made disproportionately by profitable customers (high CLV). This makes a bad move even worse.

It reminds me of the days when bookstore chain Borders handed the keys to their e-commerce operations to Amazon. That went well, didn’t it?

Steve Dennis
BrainTrust

On the money as usual, sir.

Andrew Blatherwick
BrainTrust

This may seem like a strange decision but it actually makes a lot of sense in this space. The only thing I would add is that they should consider online for click and collect (or BOPIS as in the U.S.) which could drive customers to their stores.

Gene Detroyer
BrainTrust

Simple — if you can’t do it well, don’t do it. Even if the future of retail is online, many, many retailers, should not go online alone. The resources needed for competent online selling are not offset by the revenue generated. For Burlington, if there is an opportunity that their products have incremental online demand, have someone else do it. Hello Amazon.

Shelley E. Kohan
BrainTrust

The three factors driving the decision to leave e-commerce behind make it a smart, prudent and sensible move for Burlington. One additional reason is the cost of trying to run an off-price brand online with the inconsistent influx of merchandise. Merchandising online is a challenge but the added factor of being off-price makes this job very complex and costly. Even by 2023, 85 percent of sales will come from the stores, and while this varies greatly by category of business, e-commerce for off-price is not significant enough to positively impact the profit lines (gross margin and net profit margins). Burlington experience a more negative impact by keeping a faltering channel up and running both from a business and consumer perspective.

Ricardo Belmar
BrainTrust

While typically the numbers don’t lie, I wonder what data Burlington has comparing browsing vs. buying online. Sure their online e-commerce sales figures are low and based on that data point this is a sound financial decision, however, how much of the browsing on their website was fueling and supporting in-store visits? I hope that while Burlington shuts down the commerce side of their digital presence they do not see this as abandoning that digital presence completely. They have an opportunity to fuel digital engagement in other ways to drive foot traffic to their stores. While the treasure hunt nature of moderate off-price retail can make e-commerce less effective given the poor nature of most discovery processes online, most shoppers still start their journey online or at the very least pass through an online stage at some point in that buying journey. Burlington still needs to satisfy those customers!

Mark Price
BrainTrust

While it is easy to say that the off-price category is not a good fit for e-commerce, it appears that the Burlington website lacks a number of best practice-based features that T.J.Maxx has implemented, such as publicizing key issues, promoting product scarcity (while supplies last), etc. T.J.Maxx’s success may reflect a stronger brand name, but I am not sure that brand strength is the issue. Improved execution might solve a host of Burlington’s issues.

Meaghan Brophy
BrainTrust

It definitely makes sense for Burlington to walk away from e-commerce. If, after 11 years, the sales aren’t there and the margins are too small, there’s no point in trying to force a costly operation shoppers aren’t interested in.

Steve Dennis
BrainTrust
This is a shockingly naive move, repeating a mistake that many retailers have been making for more than a decade — namely being channel-centric in their thinking. Evaluating e-commerce as its own economic unit and being focused on the profitability of a transaction is precisely the same kind of thinking that caused so many retailers to fall behind in the age of digital disruption. As data from Forrester (and others) has conclusively demonstrated, for most legacy retailers, digital channels influence far more physical store sales than result in e-commerce transactions. To try to isolate the profitability of a channel is largely a fool’s errand. Online drives brick & mortar, and vice versa. Shopping is a blur. The customer is the channel. The so-called “treasure hunt” nature of the off-price industry does make for some important differences in how to architect the digitally-influenced customer journey (though, it is more than a little disingenuous for the industry to perpetuate the idea that they don’t do a significant number of programmed buys that could very easily be merchandised… Read more »
Chuck Palmer
BrainTrust

Like many off-price retailers, the “treasure hunt” excitement becomes key. In this case, it seems Burlington holds a unique place in their customers’ minds — a place reliable for solid family essentials and an occasional impulse indulgence.

While TJMaxx plays in a quasi-upscale space with just enough well-known brands, they have some clever tricks online to emulate the thrill of the hunt (see “Reveal Designer” on their category pages). That seems to be the luxury of scale and buying power.

I admire a retailer who knows who they are and who their customers are. They are showing growth from their stores and if they redirect resources to making their stores even better at what they do, we might even see some new store openings in the future.

Lee Peterson
BrainTrust

This is one of the craziest things I’ve read lately, but I get it: not really returning for you so stop it. The old proven retail method of testing. Having said that, eCom is here to stay, so the smarter play to me would be to figure out (like every other retailer is having to) how to make it more profitable vs just giving up on it. Most “blue ocean” strategies are admirable, but this one seems misguided to me.

Craig Sundstrom
Guest

I’m of mixed opinion on this. On one hand, many here have often said the “treasure hunt” experience doesn’t translate well to online, and this may be a validation of that claim; OTOH, it may well be that Burlington just couldn’t do it, and someone will come along who will. (indeed, don’t sites like eBay and Etsy largely do this already?)

So while they will probably always regret the decision somewhat (isn’t every big “what if?” a source of reflection?) there is little point in continuing on with something that doesn’t work.

Kenneth Leung
BrainTrust

This is a tough one. On the one hand if the transaction numbers aren’t there, then investing in the online transaction engine doesn’t make sense. However, I believe they still need to invest in online marketing and presence to get mindshare with the customers so they will come to the store to treasure hunt. I hope the money saved doesn’t just go to bottom line, but is invested into something that will drive growth. Otherwise it is just masking the problem.

Ananda Chakravarty
BrainTrust

The Burlington decision makes sense in the short term, not so much long term. They won’t feel the fiscal pressure now from commerce, but they will feel it when other off-price stores are better recognized, can drive more foot traffic, and deliver more relevant experiences sometime down the road. Exiting ecommerce completely means removing an entire customer touchpoint. This becomes risky long-term when other retailers offer customers product information, customer understanding and an option to buy. It’s like running your business cash-only. The customers carrying plastic are automatically going to someone else.

wpDiscuz
Braintrust
"Know your data. Use your data. After an 11-year run, it’s smart to walk away."
"This is a shockingly naive move, repeating a mistake that many retailers have been making for more than a decade — namely being channel-centric in their thinking."
"This is one of the craziest things I’ve read lately, but I get it: not really returning for you so stop it. The old proven retail method of testing."

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