Burlington Stores, the well-known discount retailer, is making waves in the retail industry with its strategic investments in distribution centers (DCs), which have already begun yielding significant cost reductions. In its third-quarter earnings call for 2024, the company outlined how these investments in both infrastructure and automation have played a pivotal role in reducing product sourcing and freight costs. The company’s focus on improving its supply chain capabilities is expected to continue driving long-term growth and operational efficiency.
Cost Reductions Through Distribution Center Investments
Burlington’s supply chain improvements were a major contributor to its cost reductions in Q3 2024. During the earnings call on November 26, 2024, Burlington’s Executive Vice President and Chief Financial Officer (CFO), Kristin Wolfe, explained that the retailer had achieved a 50-basis-point reduction in product sourcing costs. These costs, which encompass processing and buying expenses, are a critical part of Burlington’s overall operational efficiency.
Alongside the reductions in product sourcing, the company also saw a 20-basis-point decrease in freight expenses for the quarter. These reductions reflect Burlington’s ongoing commitment to optimizing its logistics and distribution processes to maintain cost-effective operations, a strategy that aligns with the retailer’s long-term financial goals.
Looking ahead, Burlington anticipates achieving approximately 50 basis points of leverage in product sourcing costs for the full year of 2024, which would be an improvement over the previous year. According to Wolfe, the company is on track to reach its goal of 100 basis points of product sourcing leverage by the end of its five-year plan, reinforcing the effectiveness of its ongoing supply chain initiatives.
A Shift Toward Ownership and Automation
Burlington’s investment strategy is not just focused on cost reduction; it is also positioning the company to gain greater control over its operations and future growth. A key part of this strategy is the company’s shift toward owning its distribution centers instead of leasing them. Currently, Burlington owns just two of its 12 primary distribution centers and warehouses, but the company is actively working to expand this number.
Wolfe noted that owning more of its facilities allows Burlington to better design its DCs to meet the specific needs of its off-price retail model. By having full control over the design and operation of these facilities, Burlington can ensure they are optimized for the highest levels of efficiency, flexibility, and cost-effectiveness.
This approach will also give Burlington greater control over the long-term sustainability of its distribution network, enabling the company to respond more effectively to changes in the retail landscape and fluctuations in demand. The company plans to open a new, state-of-the-art distribution center in Savannah, Georgia, in 2026. This 2 million-square-foot facility will be owned by Burlington and is expected to play a key role in supporting the retailer’s expanding store footprint.
The Role of Automation in Improving Productivity
In addition to owning its distribution centers, Burlington is heavily investing in automation to further enhance its supply chain productivity. Automation has become a critical component of modern retail operations, particularly for discount retailers like Burlington, who need to maintain low prices while managing high volumes of inventory.
Wolfe highlighted that Burlington is redesigning the flow of merchandise within its DCs, automating select processes, and reducing manual touches and processing time. These efforts aim to save labor costs and improve the overall efficiency of the facilities. By streamlining its operations through automation, Burlington is positioning itself to respond quickly to market demands while keeping costs under control.
This focus on automation is also part of the company’s broader plan to modernize its supply chain. Following the completion of the Savannah facility in 2026, Burlington plans to continue investing in larger and more automated distribution centers, with a particular focus on improving productivity and flexibility. By integrating cutting-edge technologies into its distribution centers, Burlington is setting itself up for success as it moves forward into the next phase of its growth.
Long-Term Strategy and Future Growth
Burlington’s strategy is clearly focused on creating a more efficient and scalable supply chain that can support its ongoing expansion. The company’s capital expenditures, which are expected to be around 7% of sales in 2024 and 2025, will be largely directed toward the development of new stores and distribution centers. This level of investment is slightly higher than historical spending levels, reflecting the company’s commitment to upgrading its infrastructure to meet the demands of an ever-changing retail landscape.
Burlington’s future growth will be supported by its expanding network of distribution centers, which will allow the retailer to better serve its growing store base while maintaining a strong focus on cost efficiency. The planned 2 million-square-foot facility in Savannah is just the beginning. Burlington’s continued investments in automation, ownership of facilities, and modernization of its supply chain will help the company navigate the challenges of a competitive retail environment while staying true to its off-price business model.
Conclusion
As Burlington Stores moves forward with its ambitious distribution center investments and automation initiatives, the retailer is setting itself up for long-term success. By reducing product sourcing and freight expenses in the short term and investing in scalable infrastructure for the future, Burlington is positioning itself as a leader in the discount retail sector. The company’s focus on owning its distribution centers, along with its ongoing efforts to integrate automation into its supply chain, will provide the flexibility and efficiency needed to drive continued growth and profitability in the years ahead.
At Gain Consulting, we recognize the importance of these types of strategic investments in driving supply chain success. By continuously evolving and optimizing their operations, companies like Burlington can not only reduce costs but also position themselves to thrive in an increasingly complex retail environment.
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