Big Lots 2011 Annual Report Download - page 124

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If we are unable to compete effectively in the highly competitive discount retail industry, our business and
results of operations may be materially adversely affected.
The discount retail business is highly competitive. As discussed in Item 1 of this Form 10-K, we compete
for customers, employees, products, real estate, and other aspects of our business with a number of other
companies. Certain of our competitors have greater financial, distribution, marketing, and other resources than
us. It is possible that increased competition or improved performance by our competitors may reduce our market
share, gross margin, and operating margin, and may materially adversely affect our business and results of
operations in other ways.
Changes by vendors related to the management of their inventories may reduce the quantity and quality of
brand-name closeout merchandise available to us or may increase our cost to acquire brand-name closeout
merchandise, either of which may materially adversely affect our revenues and gross margin.
The products we sell are sourced from a variety of vendors. The portion of our merchandise assortment that
is pre-planned and made for us consists of imported merchandise (primarily merchandise in our furniture,
seasonal, and home categories along with merchandise in certain other departments like toys) or merchandise
that we can re-order upon demand. However, for the closeout component of our business, we do not control
the supply, design, function, availability, or cost of many of the products that we offer for sale. Our ability to
meet or exceed our operating performance targets for gross margin depends upon the sufficient availability of
closeout merchandise that we can acquire and offer at prices that represent a value to our customers. In addition,
we rely on our vendors to provide us with quality merchandise. To the extent that certain of our vendors are
better able to manage their inventory levels and reduce the amount of their excess inventory, the amount of
closeout merchandise available to us could be materially reduced. Shortages or disruptions in the availability of
closeout merchandise of a quality acceptable to our customers and us would likely have a material adverse effect
on our sales and gross margin and may result in customer dissatisfaction.
We rely on vendors located in foreign countries for significant amounts of merchandise and a significant
amount of our domestically-purchased merchandise is manufactured abroad. Our business may be
materially adversely affected by risks associated with international trade.
Global sourcing of many of the products we sell is an important factor in driving higher gross margin. During
2011, we purchased approximately 26% of our products directly from overseas vendors including 23% from
vendors located in China. Our ability to identify qualified vendors and to access products in a timely and
efficient manner is a significant challenge, especially with respect to goods sourced outside of North America.
Global sourcing and foreign trade involve numerous factors and uncertainties beyond our control including
increased shipping costs, increased import duties, more restrictive quotas, loss of “most favored nation” trading
status, currency and exchange rate fluctuations, work stoppages, transportation delays, economic uncertainties
such as inflation, foreign government regulations, political unrest, natural disasters, war, terrorism, trade
restrictions (including retaliation by the United States against foreign practices), political instability, the
financial stability of vendors, merchandise quality issues, and tariffs. These and other issues affecting our
international vendors could materially adversely affect our business and financial performance.
Disruption to our distribution network, the capacity of our distribution centers, and the timely receipt of
merchandise inventory could adversely affect our operating performance.
We rely on the ability to replenish depleted merchandise inventory through deliveries to our distribution
centers and from the distribution centers to our stores by various means of transportation, including shipments
by sea, rail and truck carriers. A decrease in the capacity of carriers and/or labor strikes or shortages in the
transportation industry could negatively affect our distribution network, the timely receipt of merchandise and
transportation costs. In addition, long-term disruptions to North American and international transportation
infrastructure from wars, political unrest, terrorism, natural disasters and other significant events that lead to
delays or interruptions of service could adversely affect our business. Also, a fire, earthquake, or other disaster
at one of our distribution centers could disrupt our timely receiving, processing and shipment of merchandise
to our stores which could adversely affect our business. As we continue to expand our operations, we may face
increased or unexpected demands on distribution center operations, as well as unexpected demands on our