Burlington’s jump in e-commerce sales
US e-commerce sales as a percentage of total retail sales reached 7.4% in the third fiscal quarter of 2015. Based on the data released by the US Census Bureau on November 17, the US retail e-commerce sales increased by 4.2% on a month-over-month basis and 15.1% on a YoY (year-over-year) basis to $87.5 billion in the third quarter of 2015.
Off-price retailing commands a low-cost structure, which makes it difficult for off-price retailers to expand rapidly in the e-commerce space due to the pricing pressure involved, high shipping costs, and costs associated with product returns. In fact, one of the prominent off-price retailer Rack Stores (ROST) lacks an online presence as the company feels that it might not be a profitable proposition for it given its moderately priced merchandise. However, Burlington Stores (BURL) is looking forward to the growth of its online business.
Burlington’s online business
Burlington Stores launched its e-commerce website in 1999, making it the first off-price retailer to have an online presence. The company has improved the navigation of the site. The company has also engaged a third-party provider to improve its shipping. At the Goldman Sachs Global Retailing conference held in September 2015, Thomas A. Kingsbury, Burlington’s Chief Executive Officer, stated that e-commerce still represents only 1% or under 1% of the company’s total sales. However, the company expects its online business to continue to grow over time.
Burlington Stores is also working on expanding its online merchandise assortment and utilize e-commerce strategies to drive incremental traffic to its stores. Retailers and department stores are benefitting from strategies such as buy-online-pick-up-in-store, as they help in increasing the store traffic. For instance, according to mid-tier department store Kohl’s (KSS), customers opting to use buy-online-pick-up-in-store facility have made additional in-store purchases consistently, exceeding 20% of their original online orders.
Rival TJX Companies has three online websites: tkmaxx.com, tjmaxx.com, and sierratradingpost.com. TJX Companies is taking various initiatives to improve its online sales. At its tjmaxx.com website, the company expanded its merchandise offering by more than 1,700 brands in 2014 and added home merchandise to the site in 2015.
Burlington Stores and TJX Companies together make up 0.2% of the holdings of the iShares Russell 3000 ETF (IWV).
Now let’s compare Burlington’s leveraging to those of its peers.