Big Lots 2008 Annual Report Download - page 71

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Competition
We operate in the highly competitive retail industry and face strong sales competition from other general
merchandise, discount, food, arts and crafts, and dollar store retailers. Additionally, we compete with a
number of companies for retail site locations, to attract and retain quality employees, and to acquire our broad
assortment of closeout merchandise from vendors.
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, including our ability to pay timely, 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,
which represents merchandise that our customers consistently expect us to have in our stores or merchandise
that we believe offers our customers a significant value. 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 2008, our top ten vendors accounted for 14% of total purchases (at cost) while the largest
vendor accounted for approximately 3% of the aggregate.
During 2008, we purchased approximately 27% 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 one furniture distribution center. During
2008, we integrated the distribution of furniture out of our Columbus, Ohio furniture distribution center and
into four of our regional closeout distribution centers. We believe this change allows us to more efficiently flow
product to our stores primarily by reducing the transportation cost of furniture from the distribution centers
to the stores because the regional distribution centers are generally located closer to the stores they service. In
addition to the merchandise distribution centers, we operate warehouses in Ohio and California that distribute
store fixtures and supplies. We manage the inventory levels of merchandise in our distribution centers so that
we can distribute quickly and efficiently to our stores in order to maximize sales and our inventory turnover
rate. We selected the locations of our distribution facilities in an attempt to minimize transportation costs
and the distance from distribution facilities to our stores. Some of our vendors deliver merchandise directly
to our stores. During the past three years, we implemented several warehouse, distribution, and outbound
transportation initiatives, including but not limited to a vendor compliance program in 2006 that imposes strict
documentation and packing requirements on shipments of merchandise that we receive in our distribution
centers, an outbound transportation initiative in 2007 that led to a higher use of one-way carriers and thus a
reduction in round trip carriers, the integration in 2008 of the Columbus, Ohio furniture distribution center into
four of our regional distribution centers, and other transportation initiatives aimed at lowering our inbound and
outbound transportation costs.