Burlington Stores CEO Says Lower-Income Shoppers Gaining Amid Economic Shifts

As Burlington Stores CEO Michael O’Sullivan discussed the company’s strong fiscal results during its second-quarter earnings call (Aug. 29), he offered his thoughts related to strategic changes and their positive impact.

“Over the past 18 months the external environment has become more favorable,” O’Sullivan said. “Two years ago, our core low-income customer was under severe economic pressure from the higher cost of living. Since then, it feels as if two things have happened. As inflation has moderated, the situation for lower-income shoppers has somewhat improved. In parallel, economic pressure and uncertainty have spread and broadened well beyond lower-income shoppers. There is now a greater focus on value across demographic groups and income bands. This greater focus on value is helping our business.”

During the company’s first-quarter earnings call, O’Sullivan described the external situation and the health of the consumer as “being hard to read.”

At the time, O’Sullivan said, “It felt like there were conflicting data, some positive, some negative, on discretionary spending trends. I would say in the last few months, it feels to us that the situation has become a lot clearer, and it feels like that has driven a much greater focus on value across the board. I think that recent earnings reports from other retailers are all pointing in the same direction. Retailers that are offering the best value are winning and driving comp sales.”

Deal-Seeking Consumers Switch Loyalties

O’Sullivan said value-conscious consumers are trading down into Burlington Stores.

“The pressure on the lower-income customer hasn’t gone away, but it feels to us like it may have moderated,” he said. “And that low-income shopper is still very fragile, but as inflation has come down, I think their situation has improved somewhat. We see evidence of that in our own data. Two years ago, our comp sales trend for stores that are in lower-income trade areas was below the rest of the chain. We have a lot of stores in lower-income trade areas and they tend to be relatively high volume. So, when they’re not comping well, we pay a lot of attention.”

PYMNTS own data shows that cash-strapped consumers living paycheck to paycheck are trading down instead of foregoing purchases. That presents a boon for the discount retailers.

Burlington Leans Into Value to Woo Shoppers

Burlington Stores, an off-price discount retailer known for its high-quality branded apparel and home merchandise, reported a 5% increase in comparable store sales and a 13% rise in total sales, exceeding expectations.

The company opened 36 net new stores during the second quarter and, O’Sullivan noted, “we’re on track to open 100 net new stores plus approximately 30 relocations. As discussed in the past, on average, we expect our new stores to run at about $7 million in sales in their first full year. I am pleased to say that our new stores are running ahead of this benchmark.”

O’Sullivan pointed to the company’s success with full-price selling.

“Our merchants are focused on offering really sharp value out of the gate at the initial ticketed price,” he said. “This is driving faster turns and lower markdowns. This means that there is less inventory making it to the clearance rack. Our comp on clearance sales was down double-digits in Q2. Meanwhile, our comp on full-price selling was positive 7%.”

O’Sullivan praised the company’s execution during the second quarter, saying, “We have made a lot of changes and improvements to our business over the last few years in merchandising and in operations. We are still in the early innings of many of these programs. And to be clear, we have a long way to go in terms of achieving full potential off-price execution. But we are gaining traction and making some good progress.”

Offering a mix of better brands has proven successful, O’Sullivan added.

“We see an opportunity more generally to elevate our assortments,” he said. “We’ve been shifting in that direction for a while now and we’ve seen good selling on those better brands, and we’ve seen good selling at higher price points. We believe that increasing the mix of better brands accomplishes two things. Firstly, those brands themselves drive increased trade-down traffic to our stores. Trade-down shoppers are looking for better, more recognizable brands. Secondly though, those brands also help to validate and reinforce the whole store. Even if a shopper does not buy the specific item, the fact that they see the brand, reinforces the off-price value proposition. It provides a halo, if you like, to our business. So, in the coming months, you will see a higher mix of better brands in our runs.”