Big Lots 2009 Annual Report Download - page 123

7
If we are unable to continue to successfully execute our operating strategies, our operating performance
could be significantly impacted.
There is a risk that we will be unable to continue to meet or exceed our operating performance targets and goals
in the future if our strategies and initiatives are unsuccessful. In 2010, we announced operating performance
targets and goals as part of an updated strategic plan, that we intend to use as our roadmap for the next three
years (see the accompanying MD&A for additional information concerning our operating strategy). The new
plan includes a continued focus on merchandising, real estate, and cost structure.
If we are unable to compete effectively in the highly competitive discount retail industry, our business and
results of operations may be materially adversely affected.
The discount retail business is highly competitive. As discussed in Item 1 of this Form 10-K, we compete
for customers, employees, products, real estate, and other aspects of our business with a number of other
companies. Certain of our competitors have greater financial, distribution, marketing, and other resources than
us. It is possible that increased competition or improved performance by our competitors may reduce our market
share, gross margin, and operating margin, and may materially adversely affect our business and results of
operations in other ways.
Declines in general economic condition, consumer spending levels, and other conditions could lead to
reduced consumer demand for our merchandise thereby materially adversely affecting our revenues and
gross margin.
Our results of operations can be directly impacted by the health of the United States’ economy. Our business
and financial performance may be adversely impacted by current and future economic conditions, including
factors that may restrict or otherwise negatively impact consumer financing, disposable income levels,
unemployment levels, energy costs, interest rates, recession, inflation, the impact of natural disasters and
terrorist activities, and other matters that influence consumer spending. The economies of four states (Ohio,
Texas, California, and Florida) are particularly important as approximately 36% of our current stores operate in
these states and 38% of our 2009 net sales occurred in these states.
Changes by vendors related to the management of their inventories may reduce the quantity and quality of
brand-name closeout merchandise available to us or may increase our cost to acquire brand-name closeout
merchandise, either of which may materially adversely affect our revenues and gross margin.
The products we sell are sourced from a variety of vendors with approximately half of our merchandise
assortment being pre-planned and made for us and approximately half of our merchandise sourced on a closeout
basis. The portion of our assortment that is pre-planned and made for us consists of imported merchandise
(primarily furniture, seasonal, and portions of our home categories along with certain other classifications
like toys) or merchandise that is re-orderable upon demand. For the closeout component of our business, we
do not control the supply, design, function, availability, or cost of many of the products that we offer for sale.
We depend upon the sufficient availability of closeout merchandise that we can acquire and offer at prices
that represent a value to our customers, in order to meet or exceed our operating performance targets for gross
margin. In addition, we rely on our vendors to provide us with quality merchandise. To the extent that certain
of our vendors are better able to manage their inventory levels and reduce the amount of their excess inventory,
the amount of closeout merchandise available to us could be materially reduced. Shortages or disruptions in
the availability of closeout merchandise of a quality acceptable to our customers and us, would likely have a
material adverse effect on our sales and gross margin and may result in customer dissatisfaction.
We rely on vendors located in foreign countries for significant amounts of merchandise. Additionally, a
significant amount of our domestically-purchased merchandise is manufactured abroad. Our business may
be materially adversely affected by risks associated with international trade.
Global sourcing of many of the products we sell is an important factor in driving higher gross margin. During
2009, we purchased approximately 25% of our products directly from overseas vendors including 19% from
vendors located in China. Our ability to find qualified vendors and to access products in a timely and efficient
manner is a significant challenge, especially with respect to goods sourced outside of the United States. Global
sourcing and foreign trade involve numerous factors and uncertainties beyond our control including increased