Big Lots 2007 Annual Report Download - page 93

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Purchasing
An integral part of our business is the sourcing and purchasing of quality brand-name merchandise directly
from manufacturers and other vendors typically at prices substantially below those paid by traditional retailers.
We believe that we have built strong relationships with many brand-name vendors and we have capitalized on
our purchasing power in the closeout marketplace to source merchandise that provides exceptional value to our
customers. We have the ability to source and purchase significant quantities of a vendor’s closeout merchandise
in specific product categories and to control distribution in accordance with vendor instructions, thus providing
a high level of service and convenience to our vendors. Our sourcing channels also include bankruptcies,
liquidations, and insurance claims. We supplement our traditional brand-name closeout purchases with various
direct import and domestically-sourced merchandise in departments such as furniture, home decorative, lawn
& garden, and Christmas. We expect that the unpredictability of the retail and manufacturing environments
coupled with our dominant purchasing power position will continue to support our ability to source quality
closeout merchandise at competitive prices.
We have a buying team with extensive closeout purchasing experience, which we believe has enabled us to
develop successful long-term relationships with many of the largest and most recognized vendors in the United
States. We believe that, as a result of these relationships and our experience and reputation in the closeout
industry, many vendors offer buying opportunities to us prior to attempting to dispose of their merchandise
through other channels.
Our merchandise is purchased from domestic and foreign vendors that provide us with multiple sources for each
product category. In 2007, our top ten vendors accounted for 14% of total purchases (at cost) while the largest
vendor accounted for approximately 3% of the aggregate.
During 2007, we purchased approximately 25% of our merchandise directly from overseas vendors, including
21% from vendors located in China. Additionally, a significant amount of our domestically-purchased
merchandise is manufactured abroad. As a result, a significant portion of our merchandise supply is subject to
certain risks as described further in Item 1A in this Form 10-K.
Warehouse and Distribution
The majority of the merchandise sold by us is received and processed for retail sale and distributed to the
retail locations from our five regional closeout distribution centers and two furniture distribution centers. In
addition to the merchandise distribution centers, we operate warehouses in Ohio and California that distribute
store fixtures and supplies. We carry sufficient quantities in our distribution centers so that we can distribute
quickly and efficiently to our stores in order to maximize sales. We have located and managed our distribution
facilities to enable quick turn of time-sensitive products while attempting to minimize transportation costs and
the distance from distribution facilities to our stores. We have arrangements with some of our vendors to deliver
merchandise directly to our stores. During 2006, we initiated a vendor compliance program that includes strict
documentation and packing requirements for shipments of merchandise we receive in our distribution centers.
This program has contributed to the efficiency of inventory flow through our distribution facilities. During
2007, we benefited from several warehouse and distribution initiatives, the most significant of which includes
an outbound transportation initiative that led to a higher use of one-way carriers and thus a reduction in round
trip carriers. This initiative lowered our overall transportation cost because we paid for fewer freight miles,
although the cost per mile increase partially offset this savings. Other initiatives included improvements in
furniture distribution resulting in the integration of the distribution of certain ready-to-assemble furniture from
the furniture distribution centers into the regional distribution centers.
For further discussion of our warehouses and distribution facilities, refer to the Warehouse and Distribution
section under Item 2 in this Form 10-K.
Advertising and Promotion
Our brand image is an important part of our marketing program. Our principal trademarks, including the Big
Lots® family of trademarks, have been registered with the U.S. Patent and Trademark Office. We use a variety
of marketing approaches to promote our brand and retail position through television, internet, in-store point of
purchase and print media. The centerpiece of our marketing efforts is our television campaign which combines