Burlington to pull out of e-commerce
Having reported solid growth in fiscal 2019, off-price fashion retailer Burlington Stores, Inc. has revealed that it is planning to shutter its e-commerce operations in order to concentrate on its brick-and-mortar stores.
Announced by Burlington CEO Michael O’Sullivan during the company’s fourth quarter earnings call late last week, the move may seem like a counterintuitive decision considering the importance of digital channels in the current retail landscape, but O’Sullivan was keen to point out a number of specificities in the company’s business which, he believes, mean that stepping back from e-commerce is the right choice.
“The nature of the treasure hunt and the average price point that we operate at mean that bricks-and-mortar stores have a significant competitive and economic advantage over e-commerce,” he explained, alluding to the unique "treasure hunt" shopping experience offered by off-price brick-and-mortar retail.
More specifically, the CEO pointed out that considering Burlington’s average unit retail is around $12, it would be difficult for the company to make a profit through a more e-commerce-focused approach, due to the extra costs related to merchandising, processing, shipping and accepting returns.
O’Sullivan also underlined that over the last few years, e-commerce growth in the retail sector has been accompanied by steady progress in moderate off-price brick-and-mortar retail, which has continued to gain share.
As proof of this trend, the executive highlighted Burlington’s own top-line growth, which has averaged at around 8% over the last three years.
Finally, O’Sullivan claimed that, as the smallest of the U.S.’s major off-price retail chains – the other two being Ross Stores and TJX Companies – Burlington still has “significant potential for further growth” in its brick-and-mortar network, which currently boasts around 720 stores. In line with this approach, the company also intends to open 54 new locations in 2020.
The decision comes as off-price rival Ross Stores, where O’Sullivan spent a decade as president and COO before joining Burlington in September of last year, announced that it is also doubling down on its brick-and-mortar channel. On Monday, the retailer, which currently operates 1,831 locations across the U.S., revealed plans to open a further 100 stores before the end of the year.
In fiscal 2019, Burlington’s total sales increased 9.3% to $7.26 billion, up from $6.64 billion in the previous year, while net income at the company came to $465.12 million, or $6.91 per share, up 12% from $414.75 million, or $6.04 per share, last year.
Looking forward, Burlington expects its total sales to increase in the range of 8% to 9% in fiscal 2020, while adjusted EPS are predicted to between $7.97 to $8.12.
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