Two weeks ago, it didn't seem so crazy for Burlington Stores (NYSE:BURL) to announce it was doing away with its e-commerce platform. Because online sales made up a negligible portion of its business and discount consumers enjoyed the treasure hunt atmosphere that they could only find at its stores, the retailer said it would wind down its digital presence.
Yet now in the midst of a global pandemic, where state and local governments are enforcing non-essential business closures and people are heeding the advice to practice social distancing and self-isolation, an e-commerce presence may be the only way some businesses make it through this crisis.
Maybe an e-commerce platform, even if it contributes negligible amounts during good times, is still essential for when the bad times inevitably come.
Turning to online channels
Admittedly, buying name brand fashion, even at a deep discount, isn't top of mind for most consumers. When meat display cases at grocery stores are empty and hand sanitizer, paper towels, and toilet paper are in short supply, snagging a great deal on that shirt you were eyeing seems superfluous.
Yet retailers without an e-commerce presence risk losing sales, market share, and potentially future customers to online retailers like Amazon, which is prioritizing shipments of basic essentials that consumers need just to get through a day.
While the response to the pandemic evolves rapidly, the importance of e-commerce is becoming more clear, and those with a platform are prioritizing it.
More than 110 retailers, including national chains like Apple, Macy's, and Nordstrom, have temporarily closed all of their physical locations in the country, and more are doing so daily.
Gap Stores (NYSE:GPS), which just closed all of its North American stores across all of its concepts, told analysts that with social distancing being enforced, its $4 billion online business is now more critical than ever to its operations. Incoming president and CEO Sonia Syngal said, "It's a profitable business for us, driving outsized growth with much runway ahead." It's going to need those sales now.
Discounting is a razor-thin margin business
Of course, it's also true that helping the country get out in front of and controlling the spread of the pandemic may be a higher priority for businesses at the moment than making a sale. But companies can't go too long with zero revenue coming in. That's going to place extra strain on retailers like Ross Stores (NASDAQ:ROST), which has never had an e-commerce platform.
There are (or were) very good reasons behind the discount chains eschewing a digital presence. Where Gap finds online sales to be profitable, Burlington says it's difficult to make money through e-commerce, because the average unit price is $12. The margins just aren't there, and it's a more challenging method of selling due to the high inventory turnover rates.
CEO Michael O'Sullivan said during an earnings call on Mar. 5, "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."
A unique moment in time
We're in fairly unprecedented territory at the moment, so there may be no right answer. As the legal maxim that hard cases make bad law indicates, reactions to extreme situations could result in poor policy.
Still, the pandemic shows the potential pitfalls of not having an e-commerce backup policy in place, just as the national grid crashing would show the risks with being an online-only retailer. An omnichannel presence may really be the best of all worlds for retailers, and discounters like Burlington Stores, Ross Stores, and TJX may be best served by having at least a minimal online presence.