Big Lots 2009 Annual Report Download - page 120

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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 miles, the integration in 2008 and 2009 of our former furniture distribution centers into all of our
regional distribution centers, and other transportation initiatives aimed at lowering our inbound and outbound
transportation costs.
For additional information regarding our warehouses and distribution facilities and related initiatives, see the
discussion under the caption “Warehouse and Distribution” in “Item 2. Properties,” of this Form 10-K and
the discussion under the caption “Operating Strategy – Cost Structure” in the accompanying MD&A 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 elements of strategic branding and promotion. These same elements are then used in all other
consumer touch points. Our highly targeted media placement strategy uses national cable as the foundation of
our television buys which is then supplemented with local broadcast in key markets. Our marketing program
utilizes printed advertising circulars, which we design, and are distributed in all markets that are served by
our stores. In 2009 and 2008, we distributed multi-page circulars covering 27 weeks which we will repeat in
2010. We distribute circulars through a combination of newspaper insertions and mailings. We create regional
versions of these circulars to take advantage of market differences caused by product availability, climate, and
customer preferences. In addition, we use in-store promotional materials, including in-store signage, emphasize
special bargains and significant values offered to customers. We continue to use our website (www.biglots.com)
as a key touch point for special catalogs and our online advertising, attracting over 0.7 million unique visitors
each week. In 2006, we overhauled and re-launched our website. Our on-line customer list, which we refer
to as the Buzz Club, has grown from just over one million members at the end of 2006 to approximately five
million members at the end of 2009. The Buzz Club database is an important marketing tool which allows us
to communicate in a cost effective manner with our customer, including e-mail delivery of our circulars. In
addition to Buzz Club, in August of 2009, we started our Buzz Club Rewards program (“Rewards”), which has
grown to 1.2 million members at the end of fiscal 2009. Members of the Rewards program use a membership
card when making purchases and earn discounts on future purchases when they meet certain thresholds.
Rewards members may also receive other targeted promotions via e-mail. Total advertising expense as a
percentage of total net sales was 2.0% in 2009 and 2.2% in 2008 and 2007.
Seasonality
We have historically experienced, and expect to continue to experience, seasonal fluctuations, with a larger
percentage of our net sales and operating profit realized in the fourth fiscal quarter. In addition, our quarterly
net sales and operating profits can be affected by the timing of new store openings and store closings, the
timing of television and circular advertising, and the timing of certain holidays. We historically receive a higher
proportion of merchandise, carry higher inventory levels, and incur higher outbound shipping and payroll
expenses as a percentage of sales in the third fiscal quarter in anticipation of increased sales activity during
the fourth fiscal quarter. The fourth fiscal quarter typically includes a leveraging effect on operating results
because net sales are higher and certain of our costs are fixed such as rent and depreciation.
The seasonality of our net sales and related merchandise inventory requirements influences our availability of
and demand for cash or access to credit. We historically have maintained and drawn upon our credit facility
to fund our working capital requirements, which typically peak slightly before or after the end of our third
fiscal quarter. We historically have higher net sales, operating profits, and cash flow provided by operations
in the fourth fiscal quarter which allows us to substantially repay our seasonal borrowings. In 2009, our total
indebtedness (outstanding borrowings and letters of credit) peaked at approximately $120.8 million in early