Big Lots 2007 Annual Report Download - page 110

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hardlines businesses. We continue to evaluate how our stores are merchandised and, when appropriate, to
redesign our stores to focus on capturing volume opportunities in categories that we believe have the potential to
out-perform other merchandise.
Our marketing efforts continue to involve a mix of circulars, in-store marketing, television, and online
advertising. Many of the products we offer in the circulars are a result of the merchandising strategies discussed
above. The planning and coordination that goes into these circulars improves their effectiveness and helped to
drive sales, gross margin dollars, and the inventory turnover rate. We have developed better in-store marketing
strategies, such as improved signage, aimed at increasing total sales dollars from each customer. Our new
signage was tested favorably during 2006 and was rolled out to all stores late in the fourth quarter of 2006.
Lastly, we continue to market to our Buzz Club, with a free online membership and by aggressively signing up
new members and alerting them to new merchandise and offerings in our stores.
In 2005, as part of a review of our merchandising strategy, we: 1) closed our stand-alone furniture stores; 2)
executed a series of markdowns lowering in-store inventory levels in certain categories and improving inventory
turnover; and 3) exited the frozen food business.
Real Estate
As part of our WIN Strategy, we closed 174 stores during 2005, a significant number of which were
underperforming. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, the operating results of 130 of these closed
stores were reclassified to discontinued operations in 2005 and all prior periods reported. See note 11 to the
accompanying consolidated financial statements for further discussion of our discontinued operations.
We have slowed our rate of new store openings and our strategy is more market focused and prioritized to our
strongest markets in the Northwest, West, and South. We have allocated approximately $15.0 million to $20.0
million in total to open new stores from 2007 through 2009. This level of expenditure is planned to result in
an average of 15 new stores a year. During 2007, we opened a total of 7 new stores. While we would like to
open more new stores, we continue to exercise prudence with respect to capital allocation, including avoiding
overpaying for leased real estate in order to deliver store unit growth.
Our strategy includes additional investments in a select number of our existing stores in order to improve
operating efficiency. In 2007, we spent approximately $20 million to implement our new point-of-sale register
system in approximately 700 of our stores. We expect that our remaining stores will receive the new point-of-
sale register system in 2008 at an additional cost of approximately $20 million. In addition, in 2007, we spent
approximately $5 million for store retrofits and merchandise fixtures at approximately 70 of our stores to better
feature some of our key merchandise growth classifications. Retrofitting a store includes reorganizing the
selling floor primarily by moving fixtures to improve the alignment of the selling floor with our merchandising
and marketing efforts. We believe we have developed a store format that allows us the opportunity to get more
merchandise out on the selling floor in some of our higher volume, small square footage stores, including
opening full furniture departments in approximately one half of the 2007 store retrofits. In 2008, we plan on
completing approximately 40 store retrofits, all of which will add a full furniture department.
Operating Expenses
Our goal is to continue to generate selling and administrative expense leverage. We have changed processes and the
way we operate the business. We believe that changes we have made and continue to make in merchandising are
the starting point to achieving our leverage goals. We have reduced inventory levels at our stores and our regional
distribution centers. We attempt to flow product to our stores in optimal quantities and pack sizes in a timely manner.
We have increased the percentage of acquired floor-ready merchandise that arrives in our stores pre-ticketed and
conveniently packaged for efficient display and sale. These merchandising efforts and the favorable impact of our
“raise the ring” strategy are expected to help us continue to leverage our store and distribution center operating
expenses. Based on these efficiencies along with the new point-of-sale register system, we continue to evaluate how
we schedule payroll hours in our stores as well as the appropriate staffing models.