Big Lots 2008 Annual Report Download - page 89

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we anticipate exiting by our choice in favor of relocating the store to a new location in a nearby area. For our
remaining 200 plus store locations, we expect to exercise our renewal option or negotiate more favorable lease
renewal terms sufficient enough to enable us to achieve an acceptable return on our investment.
Our strategy has included the following additional investments in our existing fleet of stores in order to improve
operating efficiency:
• In 2007 and 2008, we invested approximately $38 million to implement our new point-of-sale
register system in all of our existing stores with the expected benefits to include more timely and
accurate sales and inventory information, improved customer service through faster speed at
checkout, lower repair and maintenance costs, and improved labor efficiency through the use of
hand-held technology.
• In 2007 and 2008, we invested approximately $7 million in store retrofits and new merchandise fixtures
at approximately 110 of our stores to better feature some of our key merchandise growth classifications.
With respect to the 110 store retrofits that were completed in 2007 and 2008, stores were chosen based on
several factors including, but not limited to, store size, whether the store had a full furniture department
or was limited to a lesser offering of furniture, overall sales volume, and comparable store sales trend.
As a result, we refreshed these 110 stores, improved their financial performance in the aggregate, and,
we believe, improved the customer shopping experience. Based on the results, we have determined that
we get the best return on our investment when we add a full furniture department to a store. Nearly 1,100
of our stores have a full furniture department and the balance of our 1,339 stores is space constrained.
Therefore, any future store retrofit activity of this type is expected to be minimal. However, it is likely
that we will continue to maintain and invest in our existing stores and will test new store layouts or
merchandise presentation ideas in the future. While we believe the completed retrofits have positively
impacted our operating results with a minor impact on our liquidity, we do not believe that the results of
the retrofits represent a material factor in our detailed discussion of changes in net sales, gross margin,
selling and administrative expenses, or depreciation expense.
• In 2009, we will be testing a new store layout in the Columbus, Ohio market and in a group of
approximately 60 test locations across the country. The layout test aims to improve the ease of
shopping our stores. It features Consumables more prominently in our store and improves the sight
lines within the store. The initial customer reaction indicates that the store seems better organized,
is cleaner, and has improved lighting, wider aisles, and generally presents merchandise more
effectively. We expect the new layout to be implemented in the Columbus, Ohio market by the end of
the first quarter of 2009 and the additional 60 test stores will be completed by the end of the second
quarter of 2009. We intend to monitor and evaluate performance of these layout test stores during
2009 before making any determination about the future rollout of the new layout to additional stores.
• An additional investment we intend to pursue during 2009 involves our food department (which
is a part of our Consumables category). The “Food Refresh” program emphasizes cleanliness and
merchandise presentation and it includes new or refinished fixtures in approximately one half of
our stores with new signage and shelf labeling. Based on feedback from our customers, we believe
improved cleanliness, better fixtures, and dedicated associate staffing to maintain a better merchandise
presentation, should instill customer confidence in the quality and freshness of our food merchandise.
Cost Structure
Our goal is to continue to generate expense leverage (lower depreciation and selling and administrative
expenses as a percent of net sales). We believe that several operational changes we have made, which we
continue to refine, have significantly contributed to the achievement of our leverage goals. Some of the
operational changes that we have made include:
• Reducing inventory levels at our stores and regional distribution centers;
• Buying and distributing merchandise to our stores in optimal quantities and pack sizes to minimize
handling in our distribution centers and stores;
• Timing receipt of merchandise in stores close to the expected display dates in order to avoid
excessive handling of merchandise;