With Limited E-Commerce, Off-Pricers TJ Maxx and Burlington Are in a Bind as Coronavirus Takes Hold

Over the past few years, discount retailers have consistently bucked industry-wide trends amid retail turbulence spurred by digital disruption and shifting consumer preferences. But as the novel coronavirus keeps stores closed and drives panic buying, COVID-19 is proving that not even off-pricers are immune to these challenging times.

Although their significant markdowns and treasure-hunt shopping experiences have consistently delivered robust sales, both Burlington Stores Inc. and The TJX Companies Inc. were recently dealt a thumbs down from analysts. The consensus: A limited e-commerce presence, combined with a downturn in discretionary spending — both of which may extend well into the next year — could reverberate across their balance sheets.

Wednesday, Fitch Ratings revised Burlington’s outlook to negative from stable, even though the retailer is armed with significant liquidity to manage operations throughout the crisis. Burlington ended 2019 with $400 million in cash and recently drew down $400 million on its $600 million asset-based revolver.

The agency further posited a scenario where so-called “nonessential” retailers could be shuttered until mid-May, sending revenues down 80% to 90% with some sales moving to e-commerce. A consumer shift to e-commerce would do little to boost Burlington though.  Early this month the retailer announced it was in the process of exiting its online business to focus on brick-and-mortar expansion, leaving it in a bind as roughly 100 of its outposts remain closed.

Assuming this scenario, Fitch expects Burlington’s revenues to plummet around 25% this year, with EBITDA declining 70% to approximately $260 million.

“Numerous unknowns remain, including the length of the outbreak; the timeframe for a full reopening of retail locations and the cadence at which it is achieved; and the economic conditions [when the economy is] exiting the pandemic, such as unemployment and household income trends, the impact of government support of business and consumers, and the impact the crisis will have on consumer behavior,” Fitch analysts added.

Meanwhile, the TJX Companies Inc. — parent to Marshalls and TJ Maxx — was downgraded to an “A” rating from “A+” by S&P Global on Friday. With less than 10% of its business done online, TJX appears to be at a disadvantage, analysts said, compared with many other retailers that are able to leverage their omnichannel models to offset some of the negative impact of physical stores being closed.

“As such, we believe the company is more exposed to the risk of a prolonged store closure or consumers that may be reticent to shop in brick-and-mortar locations,” the agency wrote in a note.

On March 19, TJX temporarily shut down its e-commerce businesses, as well as its distribution centers and offices. It also withdrew both its first-quarter and full-year guidance. According to S&P, “the heightened uncertainty regarding the impact of the coronavirus and impending recession” could affect “TJX’s financial condition [and] the company’s ability to recover operationally.”

That’s not to say there isn’t a light at the end of the tunnel for off-pricers: Some analysts are counting on the survival of the fittest; companies like Burlington and TJX that were already in a position of strength before the pandemic struck could emerge back on top. What’s more, discount retailers could snap up discounted inventory as many retailers begin canceling orders.

This scenario, predicted Credit Suisse analysts, could potentially yield the “greatest buying environment for off-price in a decade.”

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