Good news for 2024! Customers are trading down to Burlington and purchasing high-value items.
nothing special burlington stores‘ (punishment -1.64%) Business model. We sell cheap items to people looking for bargains. However, 2023 has seen significant changes in the business that are good today, but could also be beneficial in the long term if the company capitalizes on the trends. Here’s what you need to know:
What does Dollar General have to do with it?
Although this is an article about Burlington, there are broader trends in the discount retail space. for example, dollar plain‘S (DG 0.58%) During the third quarter earnings conference call, management emphasized that store traffic has been increasing recently. The company primarily sells basic goods, suggesting consumers are worried about their economic prospects and trying to stretch their money. Some of your new customers will likely do business with retailers at higher price points. Other discount stores also showed the same trend.
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This is basically the same story Burlington reported when discussing its third quarter 2023 results. In fact, Burlington expects weak economic growth to bring more customers to its stores by 2023. It may not have materialized as hoped, but it’s starting to happen.
And considering comments from others in the discount space, including Dollar General, there’s good reason to believe we could see more tradedown activity in 2024, as Burlington hopes.
But this is not all good. A discount store that attracts more people in the short term is definitely a great event. However, as economic conditions improve, there is a risk that consumers who purchased at discounted prices may decide to return to full price stores. New, affluent customers have more choices than their less affluent core consumers, who must shop at discount stores.
Burlington adapts to new customers.
What’s interesting about Burlington is that the company is selling more name-brand items that sell for higher prices, according to executives. To translate this a bit, the company’s buyers brought in the types of products that wealthy customers might want to buy, and those customers actually bought those products.
So what? Dollar General and other discount retailers may not have the same kind of flexibility when it comes to the products Burlington sells. Economic uncertainty may bring new customers to these stores, but once fears subside, those customers will likely return right back to their old spending habits.
But if Burlington can tweak its product lineup so that discount customers can find the same brands they want to buy for less, the retailer may have an opportunity to keep those customers coming back for more.
To be fair, once economic concerns subside, there will likely be less trade-down traffic in Burlington as well. But that doesn’t mean these affordable retailers won’t retain some of their traffic if they win over consumers with the right product mix. Location will also be important. The company plans to open 100 new stores per year over the next five years, especially in busy strip malls. The company is also focusing on relocating older, less productive stores to better locations.
So the complementary story to the trade-down trend is increasingly better products and better locations. It is not unrealistic to believe that Burlington, with its product flexibility, is better at retaining its eclectic customers than a retailer that focuses only on cheap items for its lower socioeconomic customer base.
Look to 2024, but think beyond
Overall, 2024 will likely be fueled by trade-down customers for Burlington and other discount retailers. This is good news and suggests that this could be a positive year in terms of profits for the entire sector.
But the real question to ask here is whether Burlington and others benefiting from the trade-down traffic can turn this from a short-term increase into a long-term benefit. Burlington’s success in introducing better brands and selling them at higher prices suggests that it can do so.
