Burlington Stores walks away from e-commerce
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.”
- Burlington Stores, Inc. Reports Fourth Quarter and Fiscal 2019 Results; Introduces Fiscal Year 2020 Outlook – Burlington Stores
- Burlington Stores, Inc’s (BURL) CEO Michael O’Sullivan on Q4 2019 Results – Earnings Call Transcript – Seeking Alpha
- The TJX Companies, Inc. Reports Above-Guidance Q4 And FY20 Results; Q4 Comp Sales Up 6%, Q4 EPS Of $.81, FY20 Comp Sales Up 4%, And FY20 EPS Of $2.67; Announces Plans To Increase Dividend 13% And To Buy Back $1.75 To $2.25 Billion Of Stock – The TJX Companies
- Ross Stores Reports Third Quarter Earnings, Updates Fourth Quarter Guidance – Ross Stores
- Ross Stores Inc (ROST) Q3 2019 Earnings Call Transcript – Seeking Alpha
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?