National Retailer Calls Initial Rollout a Success So Far
Burlington Stores, among the retailers testing small-store formats, reported that so far its prototype, at 30,000 square feet or less, is performing better than expectations.
The off-price purveyor of apparel and home goods provided the update Thursday on a fiscal second-quarter earnings call. Total sales for the chain, which now has 792 stores, increased 34% compared to the second quarter of fiscal 2019, to $2.21 billion, while comparable-store sales increased 19% compared to 2019's second quarter, Burlington CEO Michael O'Sullivan said.
During the "spring season," the first half of the year, as part of its continuing expansion Burlington opened 16 stores that were 30,000 square feet or less, according to O'Sullivan, who added that the recent debuts included one in Patchogue, New York. He predicted that this format will become Burlington's new main-store prototype over the next couple of years.
A number of retailers are testing or have already adopted small-store formats as a way to more efficiently use space to generate sales, cut occupancy costs and access areas with a high barrier to entry, like urban sites. For example, on Thursday Bloomingdale's opened its first small-format store, Bloomie's, in Fairfax, Virginia. It's only 22,000 square feet. And Macy's, parent of Bloomingdale's, is piloting a handful of Market by Macy's stores, first in Texas at about 20,000 square feet and now with two larger locations planned in the Atlanta area.
Burlington, based in Burlington, New Jersey, is looking to capture the market share of retailers that were felled right before or during the pandemic, a group that includes companies such as Lord & Taylor. So Burlington is in an expansion mode, earlier this year saying it is looking to vastly increase its fleet to 2,000 sites long term, double an original goal of 1,000.
Growing Brick-and-Mortar Footprint
On Thursday's call, company officials said they still expect to open 100 new stores, while relocating or closing 25, for a total of 75 net new stores in fiscal 2021.
In the second quarter, Burlington opened 11 new stores, relocated one and closed two, adding up to eight net additional stores, said John Crimmins, the company's executive vice president and chief financial officer. In the first half of the year it opened 31 net new stores, and it expects to open 44 net new stores in the second half, primarily in the third quarter, according to Crimmins.
Most of the small stores are only about 25,000 square feet, he said.
“On average this group of new stores that we opened this spring are running well ahead of our underwriting targets," Crimmins told Wall Street analysts. "And it's also true for the group of smaller stores.”
One of the most exciting things about the small-store format is "the potential it has to help us improve leverage on occupancy costs,” according to Crimmins.
"The hypothesis has always been that if we can drive similar sales volumes in smaller, less expensive boxes, that's going to help us drive operating-margin expansion," he said. "It's still in the early days, but what we've seen so far with the new batch of smaller stores is really encouraging and only strengthens our confidence in the potential of the new concept.”
Benefiting From Federal Stimulus
Soon there will be enough of the small stores to provide a true sample for Burlington to gauge the very best way to operate them, according to Crimmins.
O'Sullivan said the chain's sales got a boost from the residual benefit of federal stimulus payments earlier this year, pent-up consumer demand stemming from the pandemic — when most brick-and-mortar retail was closed — and the monthly child tax credits that started in July.
He and Crimmins also discussed how freight and supply-chain costs were soaring, and O'Sullivan chimed in about the new crop of coronavirus cases.
"At this point the surge in COVID cases driven by the delta variant shows no signs of letting up and it is unclear what impact this may have on consumer spending in the weeks ahead," he said. "In this environment it makes sense to plan our business conservatively and then adjust as we learn more."