Fast Five Shorts | Does The American Consumer Need Smaller Format Burlington Stores?

Summary

Omni Talk Retail Podcast Summary

Episode Title: Fast Five Shorts | Does The American Consumer Need Smaller Format Burlington Stores?
Release Date: January 23, 2025
Host: Omni Talk Retail
Guests: Michael O'Sullivan, John, Kelly, Chris

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1. Introduction to Burlington’s Strategic Shift

The episode kicks off with Michael O'Sullivan discussing Burlington's strategic move towards smaller store formats. Historically, Burlington operated large department-store-sized locations, but under Michael’s leadership since 2019—following his 16-year tenure at Ross as President and COO—the company has accelerated its downsizing efforts. With a current footprint of 1,103 stores, Burlington plans to open approximately 100 net new locations and relocate a few dozen annually through 2029, aiming to reach a total of 2,000 stores by the end of the decade.

Michael O'Sullivan (00:00):
"Burlington is taking aim at Ross stores and TJX with a smaller store format."

2. Leadership and Growth Plans

Michael outlines Burlington’s ambition to adapt to the evolving retail landscape by embracing smaller store formats, which align more closely with the models employed by competitors like Ross and TJX. This strategic downsizing is not just about reducing physical space but also about enhancing operational efficiency and responsiveness to consumer demands.

3. Expert Opinions

a. John’s Perspective on Consumer Needs and Inventory Management

John offers a bullish outlook on Burlington's transition. He highlights Burlington’s consecutive quarters of double-digit growth and emphasizes the company’s strength in inventory turnover—a critical factor that differentiates successful retailers from less effective ones. He believes that smaller stores will enhance Burlington’s ability to manage inventory efficiently, ensuring that shelves are stocked with products consumers actually need, thereby driving higher turnover rates.

John (00:57):
"Burlington turn inventory. And a smaller format for me will only accelerate how good they are at that already because they know what they need to do."

He also notes a shift in consumer preference towards smaller, convenience-oriented stores, which facilitate quicker shopping experiences without the overwhelm of large department-store layouts.

b. Kelly’s Insights on Real Estate and Merchandising

Kelly concurs with John, adding that the shift to smaller formats allows Burlington to utilize previously underused real estate, such as former Big Lots and Bed Bath & Beyond locations. This move not only optimizes location strategy but also expands Burlington’s product assortment beyond its traditional offerings. Kelly was particularly surprised to learn that coats now constitute only about 5% of Burlington's sales, indicating a significant diversification in their merchandise mix.

Kelly (02:25):
"We see consumers enjoy smaller stores now. They prefer a smaller convenience store they get in and out of and you can still have aspect to that without then needing a department store size."

She emphasizes that smaller stores create a more organized and enjoyable shopping experience, enhancing the "treasure hunt" aspect without the chaos of vast retail spaces.

c. Chris’s Analysis on Macroeconomic Trends and Consumer Behavior

Chris energetically supports the move to smaller formats, citing macroeconomic tailwinds that favor off-price retailers. He references consumer behavior trends where shoppers are willing to make extra trips to stores that offer unique or hard-to-find products—a concept he likens to the success seen by grocery chains like Sprouts and Trader Joe's.

Chris (04:10):
"People are willing to make extra trips to stores where they can find products they can't find anywhere else. And that's what the treasure hunt's all about."

Chris also points out that Burlington’s new store prototypes are more inviting and well-organized, which can drive repeat visits and enhance the overall shopping experience.

4. Conclusion and Future Outlook

The discussion converges on the consensus that Burlington’s strategy to adopt smaller store formats is a savvy move that aligns with current retail trends and consumer preferences. By optimizing real estate and enhancing inventory turnover, Burlington is well-positioned to capitalize on the growing demand for off-price retail experiences. The experts express optimism that this approach will not only sustain Burlington’s growth but also potentially set new industry standards.

Michael O'Sullivan (05:55):
"The savings that they're getting from consolidating real estate will help them continue to expand that and roll that out to newer stores."

John (06:18):
"It's really, really clever play. I think overall from them then."

Chris (06:49):
"I'd rather work for a company that's pushing, going with water downhill than trying to push water uphill."

5. Notable Quotes

• Michael O'Sullivan (00:00):
  "Burlington is taking aim at Ross stores and TJX with a smaller store format."

• John (00:57):
  "They don't need to stuff stores with products that people don't need. They don't need to buy inventory."

• Kelly (02:25):
  "Consumers enjoy smaller stores now. They prefer a smaller convenience store they get in and out of."

• Chris (04:10):
  "People are willing to make extra trips to stores where they can find products they can't find anywhere else."

• Michael O'Sullivan (05:55):
  "The whole shopping experience is so much better for this off price shopper."

• Chris (06:49):
  "I'd rather work for a company that's pushing, going with water downhill than trying to push water uphill."

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This episode of Omni Talk Retail provides a comprehensive analysis of Burlington's strategic pivot towards smaller store formats, supported by insights from industry experts. The consensus is that this move is well-aligned with current retail trends and consumer behaviors, positioning Burlington for continued growth and success in the competitive off-price retail landscape.

Transcript

[Michael O'Sullivan]

Burlington is taking aim at Ross stores and TJX with a smaller store format. According to the Wall Street Journal. Unlike Burlington, whose locations were historically the size of department stores, Ross and TJX brands have always operated smaller format stores. Burlington's gradual downsizing accelerated under the leadership of their current Chief Executive, Michael O'Sullivan, who joined the company in 2019 after 16 years at Ross, where he ended his tenure as president and chief operating officer. Burlington, which has 1103 stores today, plans to open about 100 net new locations and relocate a couple dozen annually through 2029. The company believes it will eventually grow to 2,000 total stores, O'Sullivan said. John, one more time right to you. Does the American consumer need more smaller format Burlington stores? Stores?

[John]

Yeah, I'll, I'll give my kind of quick pitch and I think Kelly will probably have a bigger perspective here as well. But my, my feeling is yes, I think Burlington is, is like they're, they have consecutive quarters of double digit growth. So like they are really moving forward in this trend of like off off price fashion. The other thing that I, that really drew me to this is and it's a little bit linked to our conversation with Target previously is now what do great retailers do consistently that bad retailers are like don't do and that is turn inventory. And Burlington turn inventory. And a smaller format for me will only accelerate how good they are at that already because they know what they need to do. They don't need to stuff stores with products that people don't need. They don't need to buy inventory. And I think it's going to accelerate their turns. That's my first kind of thought when I looked at this. The other thing is that we see consumers enjoy smaller stores now. They prefer a smaller convenience store they get in and out of and you can still have aspect to that without then needing a department store size. So, so for me I see like literally zero downside to this for Burlington. I think it's a smart play. I think it's going to financially make sense. It also it's them listening to their customers. So I would kind of be really interested to see the impact because I don't see a negative.

[Michael O'Sullivan]

Yeah, I agree with you Kelly. Where do you land on this one? Are you thinking that the smaller store format is the way to go?

[Kelly]

I, I do think the smaller store format is a good way to go for them and in particular looking at the types of real estate that they're moving into. It's, it's not just smaller format but I think they mentioned, you know, former big lots, former Bed Bath and Beyond. So they're moving into these spaces where people are, you know, it's a likely the demographic they're looking for Bed Bath beyond, they have home goods. So people are looking for this broader assortment where. Which has also been a big effort of theirs over the last few years to ditch the coats only merchandising, branding. And I was really surprised to find out coats are only about 5% of their sales nowadays. Which, yeah, surprised me. I didn't know. But I. I do think smaller format, the locations they're choosing will be good for them. And I just agree. I think that discovery and kind of treasure hunt aspect that they're looking to bring and emulate like the other off pricers can be really overwhelming in a big space. You know, there's stuff everywhere. You don't know. Are you taking the store quadrant by quadrant? So that smaller format is just giving you a tighter space to actually find things to buy. So I'm excited to see where this goes.

[Chris]

Right.

[Michael O'Sullivan]

And to. To John's point too. I think it allows you to update the inventory more frequently, giving people a reason to come back time and time again. Maybe more frequently than just going to buy the coats for, you know, winter time or back to school stuff or like those key moments where you might go in there. Now it's kind of getting more of that cachet that TJX and Ross have too. Chris, what about you? What do you think about this? Are you pro going small format?

[Chris]

Well, I got to tell you guys, with all respect, I. With all. To all three of you, I 100% agree with you. I 100% agree with all of you.

[Michael O'Sullivan]

You're trying to.

[Chris]

I think it's. I was trying to trick you. Yes, I think, I think it's a great move. And the reason I would call out, it's similar to what everyone was saying. But the one point I would make here would be the macroeconomic tailwind is at their back in terms of how people are shopping. People are showing a propensity to. We just had placer on our. We just interviewed Placers Ethan Chernovsky yesterday for an upcoming webinar and he told us about how people are willing to make extra trips to stores where they can find products they can't find anywhere else. And that's what the treasure hunt's all about. So, you know, I think similar to what we've seen in terms of success with sprouts and Trader Joe's, getting that extra trip in the grocery space. O'Sullivan appears to have found a smaller footprint that he thinks works in that same vein to get that extra trip from people and is scaling the prototype. So like we talked about in the last headline, this is just good merchandising. And so, yeah, I mean, ultimately I think it's going to work.

[Michael O'Sullivan]

Yeah. I mean it, it's. If you look at some of the images of some of these prototype stores, they look better, they look more inviting, they're more organized. Like the whole shopping experience is so much better for this off price shopper, which I think is, you know, just to close with, again, Kelly's point of people are going back to these spaces where they expected to see Bed Bath and Beyond. And it's almost like they're rediscovering Burlington in these same environments. Like, I didn't know Burlington had home goods. Like and. But you're going in there with a similar visual shopping experience. And I imagine that the savings that they're getting from consolidating real estate will help them continue to expand that and roll that out to newer stores.

[Chris]

Yeah, great point. And the other trend that's happening here is people are more and more and more people are shopping off price retailers. Right. That's another macroeconomic trend that's happening. And so there's probably room for a new entrant in this space too. If not a new entrant, but a more substantial determination to go after that business. I think, you know, to be that third or even that second or first player over the long run.

[John]

One final point on this. I think to give Burlington some more props is kind of. It's a really good example of them witnessing things happening in a macro retail environment that they can take advantage of. Right. So we mentioned they're taking Bed bath, big lot stores. So they see that there's real estate they wouldn't have normally gotten access to. And then they've thought, well, actually we already. We also think we can be a consumer centric, make a consumer centric decision that takes advantage of that opportunity. So it actually kind of satisfies two needs at the same time. It's really, really clever play. I think overall from them then.

[Chris]

Yeah, a hundred percent. Yeah. And for all those retail executives out there, the one thing I've Learned in my 25 years of covering retail now is I'd rather work for a company that's pushing, going with water downhill than trying to push water uphill. Right. You know, and the company is pushing water uphill like Macy's and et cetera. It's a tough game.