Monday, November 30, 2020

Burlington to Shrink Store Footprints, But Still Expand Its Brick-and-Mortar Network

By Linda Moss CoStar News

Unlike many retailers, Burlington Stores is still adding brick-and-mortar locations in the pandemic. But it will be doing so while reducing the store footprints by more than half, to 25,000 square feet from 40,000.

Michael O’Sullivan, CEO of the Burlington, New Jersey-based off-price chain, on Tuesday said the company is developing a national prototype for a “smaller box size” for its stores, which “are bigger and less productive than our peers.”

The goal of the retailer, which has roughly 770 stores, is to reduce real estate occupancy costs and to improve store-level efficiency, he said in a third-quarter earnings call with Wall Street analysts.

“Our real estate and store operations teams have done a lot of work in the past year on a 25,000-square-foot store prototype,” O’Sullivan said. “We feel good about the merchandising and operational plan that we have developed for this smaller prototype. We expect the economics of this format to be very favorable and we anticipate that it will become a central part of our new store opening and relocation programs, especially from 2022 onwards.”

Burlington raised eyebrows in March when it announced it was pulling the plug on its e-commerce business to focus on increasing its store fleet. It continues to open brick-and-mortar sites, even as this year has seen the demise of a number of retail chains and the downsizing and bankruptcies of others.

“Here at Burlington we have ambitious growth plans over the next several years,” O’Sullivan said. “We believe, as I described in my prepared remarks, that we have an opportunity to take significant market share in the years ahead.”

Store Portfolio Changes

As “the smallest, least-developed and least profitable of the major off-price retailers,” Burlington is in a position to benefit from the national retail trends that have been exacerbated by the COVID-19 outbreak, according to O’Sullivan, who joined the New Jersey company from one of its much bigger rivals, Ross Stores. Consumer desire for value has risen, as has e-commerce at the expense of full-price bricks-and-mortar retailers, according to the CEO.

Value-oriented shoppers will migrate to off-price retail, O’Sullivan said.

“This is consistent with what has actually been happening over the last several years," he said. "E-commerce has been growing rapidly, and bricks-and-mortar off-price retail has been growing in parallel. In the category that where compete, and the low-price points that we offer, e-commerce is much less effective or competitive in meeting the needs of value-oriented shoppers. As the [full-price] store closings that I described play out, there will be an opportunity for bricks-and-mortar, off-price retail to gain significant share.”

During the third quarter Burlington opened 30 new stores, bringing its total store fleet to 769, according to Chief Financial Officer John Crimmins.

“In the fourth quarter, we do not expect to open any new stores but do expect to close eight stores, resulting in an expected fiscal year-end store count of 761 stores,” he said.

In its statement, Burlington reported it will have a total of 34 net new stores in fiscal 2020.

The retailer plans to open 18 new stores in fiscal 2021 whose debuts were shifted from fiscal 2020, according to Crimmins.

One of Burlington’s strategies has been to operate with leaner inventories, and as a result it’s been able to begin reducing its store footprints, Crimmins said.

“This year our average store size is just under 40,000 square feet,” he said.

The 25,000-square-foot prototype is likely to “be a central element” to the retailer’s new store and existing store-relocation plan, according to Crimmins.

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