Off-price retailer Burlington Stores' expansion is being boosted by its acquisition of store leases belonging to troubled retailers.
The Burlington, New Jersey-based chain, which has roughly 1,100 stores, this year has already picked up or is working on buying leases for a "few dozen locations" from retailers that have filed for Chapter 11 bankruptcy, CEO Michael O'Sullivan said. Those kinds of purchases are bolstering Burlington's pipeline, and making its goal of opening 500 net new stores by 2028 achievable, according to O'Sullivan.
He made the remarks during a fiscal third-quarter earnings call, where Burlington reported that total sales rose 11%, to $2.53 billion, compared to the prior-year period. Comparable store sales increased 1%.
Burlington has been aggressively expanding its store fleet, albeit by debuting smaller locations. That growth is scheduled even as the U.S. retail vacancy rate is extremely low, about 4%, and chains are finding it challenging to find locations for new stores. At the same time, a wide array of retailers have filed for bankruptcy protection, closing some or all of their retail sites.
That's presented an opportunity for Burlington to buy some of those beleaguered companies’ leases and to secure sites beyond just negotiating deals with landlords, O'Sullivan told Wall Street analysts. The strategy has included acquiring several dozen leases of former Bed Bath & Beyond stores last year and successfully bidding on leases for former Big Lots stores this year.
Adding in a handful of stores that Burlington rolled out this month, the chain has so far opened 147 new stores this year, according to the CEO. That includes 116 new stores and 31 relocations of older oversized existing stores. After factoring in 15 store closures, Burlington expects it will end 2024 with 101 net new stores, according to O'Sullivan.
The pipeline
"We typically build our new store pipeline by identifying attractive potential new store locations and working directly with individual landlords to secure and lease these sites," he said. "I would anticipate that this will continue to be our primary approach going forward. But in the past couple of years, we have been able to supplement our new-store pipeline by selectively acquiring existing leases from retailers that are going through a bankruptcy process."
That tack "has allowed us to move into centers that we might not have otherwise been able to access," according to O'Sullivan.
"In 2023, we picked up 64 former Bed Bath & Beyond locations through this process," he said, with more deals in the works.
"We are excited about the quality and the full economic potential of these stores," O'Sullivan said. "Adding these deals to our existing pipeline and with the prospect of more opportunities ahead, we are very well positioned to open 100 net new stores in 2025 as well as meet or even exceed our 500 net new store-opening goal for the period 2024 through 2028."
Nearly all the new stores that Burlington has opened this year are modeled after its 25,000-square-foot prototype, located in busy strip malls with national co-tenants, according to O'Sullivan.
"As we have disclosed previously, on average we expect new stores to run at about $7 million in sales volume in their first full year," he said. "It is early, but our 2024 new stores are running well ahead of this expectation. Also, as we have disclosed in the past, we expect store relocations to see an average sales lift of 10%. I am pleased to say that our 2024 relocations are running well ahead of this expectation."
Supply-chain play
Burlington is also pursuing a long-term supply chain strategy of owning rather than leasing new distribution centers, according to Chief Financial Officer Kristin Wolfe.
"This will enable us to design these facilities for the flexibility and efficiency that our off-price model requires," she said. "We have a new 2 million-square-foot [distribution center] under construction in Savannah, Georgia, that is on target to be open in 2026. We intend to own this facility."
The retailer may also explore opportunities to take ownership of its existing leased distribution centers, according to Wolfe.
"It is possible that this might make sense for one or two of our existing leased [distribution centers] and we would only pursue opportunities where the economics work," she said.