US-based off-price retailer Burlington Stores has made the decision to wind down its e-commerce business as it looks to add more agility and efficiency to its operations.
The retailer launched its online operations in 2009, but the business still only represents 0.5% of total sales. Speaking on the company’s fourth-quarter earnings call, CEO Michael O’Sullivan pointed to three factors driving the decision.
“We’re a moderate off-price retailer. Our average unit retail is about US$12 – that’s the average price per unit in our stores. E-commerce, when you fully account for the cost of merchandising, processing, shipping, accepting returns…it’s very difficult, impossible to make at those price points in the businesses that we compete in.”
As such, O’Sullivan said bricks and mortar stores have “a significant competitive and economic advantage” over e-commerce.
“There are also very significant constraints on recreating the off-price ‘Treasure Hunt’ in an online environment,” he added. “Secondly, this isn’t just a conceptual argument, the data shows that over the last several [years], as e-commerce, in general, has grown, bricks and mortar moderate off-price retail has continued to power ahead and to gain share.”
O’Sullivan said Burlington’s top-line growth in the last three years has averaged about 8% per year, driven by the group’s bricks and mortar stores.
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By GlobalData“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.”
Burlington is smaller than its two major competitors, TJX and Ross Stores, operating around 720 stores currently. O’Sullivan told analysts there is, therefore, “significant potential for further growth”.
“Our off-price peers each have double or triple that, so our focus is to drive increased sales through our existing bricks and mortar stores and through our new store opening program and our store relocation programme.”
Last week, the retailer revealed 10.5% sales growth to US$2.2bn for the fourth quarter and comparable-store sales growth of 3.9%. Earnings were up 12% to $206m, while gross margin rate increased 20 basis points to 42.1%.
