Please ensure Javascript is enabled for purposes of website accessibility

Is Burlington Stores Crazy for Eliminating Its E-Commerce Platform?

By Rich Duprey - Mar 14, 2020 at 12:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

When everyone else is trying to fend off Amazon, this off-price retailer is choosing just to ignore it.

It's one of those rules virtually engraved in stone: Retailers need an e-commerce presence if they want to survive the onslaught of

Yet Burlington Stores (BURL -4.73%) has decided it can perform better if it eliminates its online store. The off-price retailer says that in its business, "bricks and mortar stores have a significant competitive and economic advantage over e-commerce." It's not wrong.

Three smiling women with shopping bags

Image source: Getty Images.

A growth market

The discount market has been remarkably resilient in the past few years. Consumers who went down-market after the last recession discovered that the "treasure hunt" nature of finding bargains on name-brand goods was fun and have continued shopping in the off-price segment.

Burlington, TJX (TJX -2.17%), and Ross Stores (ROST -2.20%) have all exceeded expectations over the years, handily beating the competition and the market indexes. Yet none has done better than Burlington Stores. Shares of the retailer have soared roughly 600% since it went public in 2013. In comparison, the S&P 500 has returned just shy of 50%.

BURL Chart

Off-Price Retailers Stock Performance, data by YCharts.

Even as the retail apocalypse has ravaged retail, forcing the closure of thousands of stores and sending numerous companies into bankruptcy, off-price retailers have been great growth stocks.

Almost an afterthought

For the most part, off-price retailers haven't been relying on online sales for growth. While Burlington has had an e-commerce platform for a decade, it was a negligible part of its business, representing only 0.5% of total sales.

TJX only recently launched an e-commerce site for its Marshalls brand. (Its T.J. Maxx chain already had one.) Finally, Ross Stores has long dismissed the need for such a site. Its online portal merely points you to its stores.

The off-price market has become more competitive over the years, as department stores like Kohl's (KSS -0.61%), Macy's (M -2.71%) and others experimented with their own discount outlets. Nevertheless, Burlington Stores has realized that abandoning its e-commerce platform isn't a crazy idea, but actually something quite smart to do.

What's in store

Off-price retailers are businesses in perpetual motion. Because their customers are always seeking out new goods through the vaunted treasure-hunt experience, the discounters rely on fast inventory turnover. Their buyers scour the market for order cancellations, manufacturer overruns, and closeouts, which allows them to have the latest fashions on hand. 

That means their inventory turns much faster than at department stores. More importantly, they're able to convert their sales into cash quickly, which investors can check on via the cash conversion cycle (CCC).

Burlington's inventory turnover may be a little slower than either TJX's or Ross' (though much faster than Macy's and Kohl's), but it is a far more efficient cash conversion machine than any of its rivals.

Retailer Days Sales Outstanding Days Inventory Outstanding Days Payable Outstanding CCC
Burlington Stores 5.25 91.50 (82.39) 14.36
Kohl's 41.42 146.95 (76.07) 112.30
Macy's 2.55 173.01 (154.38) 21.18
Ross Stores 2.82 66.98 (46.41) 23.39
TJX 3.87 74.02 (42.52) 35.37

Data source: Morningstar.

Doing more with less

Yet Burlington sees an opportunity to continue improving its inventory turnover, and management notes that inventory older than 90 days is at record lows. It believes it can become even more efficient by funneling additional resources into its stores instead of an e-commerce platform.

CEO Michael O'Sullivan told analysts on Burlington's recent earnings call that operating an e-commerce platform in the off-price segment, where unit prices average $12, is very inefficient. "E-commerce, when you fully account for the costs of merchandising, processing, shipping, accepting returns, it's very difficult, impossible to make money at those price points in the businesses that we compete in," he stated, according to a transcript compiled by S&P Capital IQ.

Going against the grain

Even though e-commerce in general is growing and Amazon dominates the retail landscape, Burlington has also grown and gained market share. In short, Burlington doesn't need e-commerce to win, and in many respects e-commerce would be a hindrance to building on the 8% annual top-line growth its stores have achieved over the last three years.

So while it may appear odd for a company to seemingly go backward to a more analog time, doing away with its e-commerce platform is really the sustainable option for Burlington Stores.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Burlington Stores, Inc. Stock Quote
Burlington Stores, Inc.
$136.23 (-4.73%) $-6.77
Macy's, Inc. Stock Quote
Macy's, Inc.
$18.32 (-2.71%) $0.51
Ross Stores, Inc. Stock Quote
Ross Stores, Inc.
$70.23 (-2.20%) $-1.58
Kohl's Corporation Stock Quote
Kohl's Corporation
$35.69 (-0.61%) $0.22
The TJX Companies, Inc. Stock Quote
The TJX Companies, Inc.
$55.85 (-2.17%) $-1.24

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.