In spite of the undeniable draw of e-commerce and the meteoric rise of digitally native brands, some retailers are taking a hard look at the online channel’s benefits—and opting to walk away.
On a March 5 earnings call, Burlington CEO Michael O’Sullivan said the off-price retailer will be ending its commerce run on the world wide web and focusing entirely on its brick-and-mortar business.
Wells Fargo senior specialty retail analyst Ike Boruchow described the decision to nix digital sales as “not a surprise.”
Burlington’s Q4 2019 results bested analyst estimates, and were driven by a “solid” 3.9 percent store sales increase from the previous year, O’Sullivan said. The three-month quarter that ended Feb. 1 saw a revenue increase of 10.5 percent to $2.21 billion, from $2.0 billion during the same period in 2019.
E-commerce drove just 0.5 percent of that revenue.
“In our business, which is a moderate off-price business, the nature of the treasure hunt and the price point that we operate at mean that brick-and-mortar stores have a significant advantage over e-commerce,” O’Sullivan said.
Plus, he added, the total cost of merchandising, processing, shipping and accepting returns in e-commerce makes it “very difficult” or even “impossible” to compete when Burlington’s average price point stands at $12.
Addressing concerns that pulling out from e-commerce could dampen brick-and-mortar footfall, O’Sullivan said he believes in more “cost-effective” ways to digitally engage with consumers and spur store visits.
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For off-price competitors like The TJX Companies Inc. (which owns TJ Maxx and Marshalls), building an online presence has been a largely noncommittal undertaking.
TJ Maxx launched its website in 2013, well after the rise of online shopping, and Marshalls made its e-comm debut just last September.
By contrast, Burlington’s online presence dates back more than 20 years. A relatively early adopter of the online sales strategy, it’s all the more significant that Burlington should decide to pull the plug in 2020.
But in Thursday’s call, O’Sullivan outlined a plan to trim the fat within the company’s operations, cutting out any initiatives, programs and processes that might encumber Burlington instead of propelling it toward future success. That includes its online business.
The CEO told investors that his goal of improving operational flexibility relies on the ability to seamlessly monitor sales trends and shift assortment based on what shoppers want.
With more than 600 stores across the U.S. receiving new shipments of product weekly, it’s up to the company’s supply chain to absorb changes in forecasting and get merchandise onto the floor as quickly as possible. The company will drastically reduce its inventory levels this year, O’Sullivan said, and is working hard to “make every hanger count.”
The nature of the off-price model banks on consumers’ desires to dig for product in a sea of options, touting the thrill of discovery as a driver. The experience is difficult to replicate online, where selection is vastly limited compared with the franchises’ regionally-tailored in-store offerings. The instant gratification of snagging a great deal is also tempered when shopping online.
“We intend to focus our energy and resources on driving profitable sales growth in our brick-and-mortar stores,” O’Sullivan told analysts, adding that Burlington will “continue to aggressively expand and upgrade” its already sizable store network through our new openings and a remodel program designed to improve existing locations.
“We anticipate e-commerce is going to continue to grow in many sectors of retail,” he added, “but in the moderate off-price business, we believe growth is going to be driven by physical stores.”