There are some things that shoppers just can’t do online. And then there are some other things they may do too much of when they shop online. The combination of those factors gives some retailers that prioritize lower price points, such as Burlington, TJ Maxx, and Ross Stores, sufficient reason to buck ecommerce trends and make the strategic decision to limit their operations to offline channels.
Although many of these companies have experimented with online stores, the results have not been particularly appealing. For example, online sales accounted for just 0.5 percent of Burlington’s total sales. They provide slightly more for the TJX corporation (which owns TJ Maxx, Marshall’s, and Home Goods), though still only 2 percent of total sales. The reason may have to do with the appeal that these types of retailers offer consumers. Their product lines primarily involve items that many people prefer to touch and feel in person, including not just apparel but also home décor.
Furthermore, to maintain their low price points, these stores establish a treasure hunt element to their inventory structure. Part of the fun of shopping in a Ross or TJ Maxx store is the possibility of running across an unexpectedly great deal on a random piece of clothing, and the knowledge that the same deal will likely not be available if the shopper fails to commit to the purchase right away. The fun and adventure associated with such shopping trips are difficult to re-create online, even on sites that stock limited releases of products, because there is no parallel physical search effort involved.
In-store operations also mean that customers can try on items before purchasing them, which can reduce the rates of returns. In contrast, when people shop for clothing online, they often order multiple sizes of the same garment or several similar styles, reasoning that they can simply return anything that does not fit. Accordingly, the costs of handling returns tend to be much higher for online channels. For low price retailers, such costs directly undermine their ability to compete on prices. If they cannot contain their operating costs, they cannot earn profits on the inexpensive items they sell. At Burlington for example, the average price of each item sold is just $12. Deriving profits from such low retail prices is virtually impossible if the retailer must cover return costs too.
With these insights, off-price retailers are reducing their focus on online stores, or eliminating them altogether. Simultaneously, they are committing to building more offline stores. Although ecommerce certainly is not going away, it might not be a substantial channel for off-price retailers seeking the best balance for appealing to their price-conscious customers.
Discussion Questions:
- Why do some retailers specializing in moderately priced apparel believe that an online presence is not profitable?
- Compare how the gross margin, inventory turnover, operating expenses/net sales, net profit margin, asset turnover, and return on assets would be different for the online and traditional stores maintained by off-price retailers like Burlington and Ross.
Source: Daphne Howland, “The Problem with Selling Apparel Online,” Retail Dive, March 11, 2020; Ben Unglesbee, “Burlington Exits E-Commerce to Focus on Brick and Mortar,” Retail Dive, March 6, 2020