How Burlington Dropped the ‘Coat Factory’ and Became a Wall Street Darling
Sheena Butler-Young
Deputy Editor
“There are two places where people want to shop today: off-price and online,” Burlington CEO Thomas Kingsbury boldly declared to a room of about 200 footwear and apparel executives who convened in Washington, D.C., this week for the American Apparel and Footwear Association Executive Summit.
The retail leader, who has helmed Burlington since 2008, helped the store chain shake its reputation as solely a seller of affordably priced coats to become a formidable player in the booming off-price retail channel.
Under Kingsbury’s watch, the company, which had previously struggled to resonate with a broader consumer base, grew its share price from around $30 in 2014 to a recent high of close to $180 late last year. To date, the stock price continues to hover around $140 to $150 — significantly outpacing the growth of rivals Ross Stores and TJ Maxx and Marshalls parent TJX Companies — as investor sentiment is buoyed by a wave of progressive steps the company has taken in recent years.
“It’s been a multiyear journey to solidify our approach to how we do business and becoming the retailer we are today,” Kingsbury told summit attendees on Wednesday of Burlington’s turnaround strategy. “When I first started, I had to define how we’re going to go market. I established [that] we’re going to buy a third of our goods before the season begins and two-thirds after the season begins … We [also previously] had POS markdowns, we had sales, we participated in Black Friday — we eliminated all of that.”
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Kingsbury said the decision to ditch massive promotions was the result of his recognition that the firm — which dropped the term “coat factory” from its name around 2009 to emphasize its expanded assortment — could better leverage its everyday-low-price model without sweeping markdowns.
“We want customers to come into our store and feel really good about buying the product [knowing that] it’s not going to go on sale a week later,” he said.
Burlington’s customers — who are typically 39 or younger, African-American or Hispanic and earn around $64,000 to $77,000 annually — are also gaining the highly lauded “thrill of the find” experience. (Experts have said one reason that recently bankrupt EDLP retailer Payless ShoeSource failed is that while it offered consistently low-priced shoes, it lacked the treasure hunt experience consumers enjoy.)
“It’s all about the treasure hunt [and a] scarcity model,” Kingsbury said, adding that the firm redesigned its stores with color-coordinated product presentation, brighter LED lighting and more organized “H racks” for clothing. “We have a very broad assortment. When a customer comes in, if they don’t buy the product that day, it may not be there a week later — and [they know that].”
According to Burlington’s chief, the company has also built in perks for its brand partners, which include athletic power players Reebok and Adidas, as well as fashion footwear-makers Steve Madden and Nine West.
“We make it easy,” he said. “We have reliable economics — when you ship those products, you know exactly what it’s going to cost you. It’s a cash-price one-time sale. No product cancellations. No margin guarantees. No markdown allowances. No marketing funds. No end-of-season returns. Very, very clean.”
With a market share of just 11.4 percent, per data from The NPD Group Inc., market watchers say off-price sellers like Burlington have significant long-term upside. (For comparison, NPD data shows department stores’ market share at 20.5 percent and specialty stores at 24.2 percent.)
“Our market share model suggests the off-price story is still in early innings,” Cowen and Co. analyst John Kernan wrote in a February note, rating Burlington shares an “outperform.” “TJX, Ross Stores and Burlington Stores are built around a speed-enhanced off-price model of fast inventory flows and a treasure hunt shopping experience, with goods flowing in and out of their stores on a weekly basis. This positions these retailers competitively for the long term.”
Despite his declaration about the two categories consumers most appreciate these days — off-price and online — Kingsbury said there’s no mistaking where his firm’s focus is: “E-commerce is less than 1 percent of our business,” he noted, adding that Burlington wants to be the best brick-and-mortar retailer.
The AAFA Executive Summit was held in Washington, D.C., from March 13 to 15 at the MGM National Harbor. Other guest speakers and panelists included Michael Evans, Alibaba president; Steven Kolb, CFDA president and CEO; Ted Dagnese, chief supply chain officer at Lululemon Athletica; and Dave Wheeler, chief product supply officer at New Balance.
