Big Lots 2010 Annual Report Download - page 78

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located closer to the stores they service. We manage the inventory levels of merchandise in our distribution
centers to facilitate the prompt and efficient distribution of merchandise to our stores in order to maximize sales
and our inventory turnover rate. We selected the locations of our distribution centers in an effort to minimize
transportation costs and the distance from distribution centers to our stores.
In addition to the regional distribution centers that handle merchandise, 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 integration reduces our fixed overhead and operating costs and allows us to more effectively manage store
fixtures and supplies inventory.
During the past three years, we implemented several warehouse, distribution, and outbound transportation
initiatives, including but not limited to 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 most other
marketing media. Our highly targeted media placement strategy uses national cable as the foundation of our
television buys which is then supplemented with commercials placed with broadcasters in key markets. Our
marketing program utilizes printed advertising circulars, through a combination of newspaper insertions and
mailings, which we design and distribute in all markets that are served by our stores. In 2010, we distributed
multi-page circulars covering 27 weeks which was consistent with our approach in 2009 and 2008 and is
consistent with our plans for 2011. 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, to emphasize special bargains and significant values offered
to our customers. Our customer list, which we refer to as the Buzz Club®, is an important marketing tool
which allows us to communicate in a cost effective manner with our customers, including e-mail delivery of
our circulars. In addition to the Buzz Club®, in August of 2009, we started the Buzz Club Rewards® program
(“Rewards”), which has grown rapidly from 1.2 million members at the end of 2009 to 7.3 million members at
the end of 2010. Members of the Buzz Club Rewards program use a membership card when making purchases
and earn discounts on future purchases when they meet certain thresholds. Buzz Club Rewards members may
also receive other targeted promotions. We continue to use our website (www.biglots.com) as a key avenue to
communicate to our customers through special catalogs and online advertising, attracting approximately 1.1
million unique visitors each week. Total advertising expense as a percentage of total net sales was 1.9% in 2010,
2.0% in 2009, and 2.2% in 2008.
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.