Discount Retailers Move Away From eCommerce

If it weren’t for a certain pandemic that is dominating most news, the two biggest stories in retail over the past week would have been stunning at any other time. Both of them came from companies that rely on a decidedly old-school business model: brick and mortar. And both of them are turning away from online sales. That’s right – no eCommerce.

The first of the two stories came from Burlington, which announced on its last earnings call that it will stop selling its off-priced goods online. From a revenue perspective, it’s no big deal. eCommerce represented just 0.5 percent of its $2.2 billion in annual revenue. But it’s the thinking behind the move that’s noteworthy. Burlington, after all, could have announced it was doubling down on eCommerce to compete with Walmart.

“In our business, which is a moderate off-price business, the nature of the treasure hunt and the average price point that we operate at mean that brick-and-mortar stores have a significant competitive and economic advantage over eCommerce,” CEO Michael O’Sullivan said on the company’s recent earnings call. “We intend to focus our energy and resources on driving profitable sales growth in our brick-and-mortar stores. We will also continue to aggressively expand and upgrade this store network through our new store opening and remodel programs.”

Burlington expects to open 80 new locations and close or relocate 26 stores this year. In fiscal 2020, the average size of its new stores will be 39,700 square feet, marking the first time it has dipped below 40,000 square feet, according to Burlington CFO John Crimmins.

In terms of calculated risks, the company measures well. Burlington has also been rewarded by Wall Street, with its stock nearly doubling over the past year before the recent massive sell-off in the market driven by coronavirus fears.

“Off-price retailers are generating a strong sales growth rate amid a challenging retail environment, in contrast to several retailers who are unable to thrive,” noted MarketRealist Analyst Sharon Bailey. “Burlington Stores aims to further drive its top-line by focusing on underpenetrated categories like home, beauty and women’s apparel. It’s also expanding its store base in existing as well as new markets.”

The second news item came from another discounter, Ross Stores. On the retailer’s website is a store locator and not much else – it doesn’t sell online. In February and March, it opened 19 Ross Dress for Less (“Ross”) and seven dd’s DISCOUNTS stores across nine different states, per reports. These new locations are part of the company’s plans to add 100 new stores – 75 Ross and 25 dd’s DISCOUNTS locations – during fiscal 2020.

“These recent openings reflect our ongoing plans to continue building our presence in both existing and newer markets, including the Midwest for Ross, and expansion of dd’s DISCOUNTS into Indiana,” said Gregg McGillis, group executive vice president of property development, in a press release. “We now operate a total of 1,831 Ross Dress for Less and dd’s DISCOUNTS locations across 39 states, the District of Columbia and Guam. As we look out over the long term, we remain confident that Ross can grow to 2,400 locations and dd’s DISCOUNTS can become a chain of 600 stores, given consumers’ ongoing focus on value.”

If brick-and-mortar retail is in trouble, Ross and Burlington never got the memo. They’re solving brick-and-mortar’s problems by pushing the consumer where they want her to go – inside the store.