Big Lots 2009 Annual Report Download - page 119

3
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, and
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. We believe this provides 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 2009, our top ten vendors accounted for approximately 14% of total purchases (at cost)
while the largest vendor accounted for approximately 3% of total purchases (at cost).
During 2009, we purchased approximately 25% of our merchandise directly from overseas vendors, including
approximately 19% 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 distribution centers located in Pennsylvania, Ohio, Alabama, Oklahoma
and California. Some of our vendors deliver merchandise directly to our stores. We previously operated two
furniture distribution centers located in Redlands, California and Columbus, Ohio. During 2009, we integrated
the distribution of furniture from our Redlands, California furniture distribution center into our regional
distribution center in California. During 2008, we integrated the distribution of furniture from our Columbus,
Ohio furniture distribution center into our regional distribution centers in Pennsylvania, Ohio, Alabama and
Oklahoma. We believe these changes allow us to more efficiently flow furniture to our stores primarily by
reducing the transportation cost from the furniture distribution centers to the stores because the regional
distribution centers are generally located closer to the stores they service. We manage the inventory levels of
merchandise in our distribution centers so that we can distribute merchandise quickly and efficiently to our
stores in order to maximize sales and our inventory turnover rate. We selected the locations of our distribution
centers in an attempt to minimize transportation costs and the distance from distribution centers to our stores.
In addition to the merchandise distribution centers, we operate a warehouse in Ohio that distributes store
fixtures and supplies. During 2009, we integrated the distribution of store fixtures and supplies out of
our Redlands, California furniture distribution center into our Ohio warehouse. We believe this change
reduces our fixed overhead and operating costs, and allows us to more effectively manage store fixtures and
supplies inventory.