Big Lots 2010 Annual Report Download - page 81

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• A downgrade in our credit rating could negatively affect our ability to access capital or increase the
borrowing rates we pay.
• A significant decline in the market value of our qualified defined benefit pension plan’s (“Pension
Plan”) investment portfolios may affect our financial condition, results of operations, and liquidity.
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 continue to use as our roadmap for the
near future. The updated plan includes a growth phase and a continued focus on merchandising, real estate,
and cost structure. Overall, both our actual 2010 operating performance and our 2011 operating performance
outlook are consistent with the operating performance targets outlined in the updated strategic plan. See the
accompanying MD&A in this Form 10-K for additional information concerning our operating strategy.
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.
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. 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 we can re-order upon
demand. However, 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. Our ability to meet or exceed our operating
performance targets for gross margin depends upon the sufficient availability of closeout merchandise that we
can acquire and offer at prices that represent a value to our customers. 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 and 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
2010, we purchased approximately 25% of our products directly from overseas vendors including 21% from
vendors located in China. Our ability to identify 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 shipping costs, increased import duties, more restrictive quotas, loss of “most favored nation” trading
status, currency and exchange rate fluctuations, work stoppages, transportation delays, economic uncertainties
such as inflation, foreign government regulations, political unrest, natural disasters, war, terrorism, trade
restrictions (including retaliation by the United States against foreign practices), political instability, the
financial stability of vendors, merchandise quality issues, and tariffs. These and other issues affecting our
international vendors could materially adversely affect our business and financial performance.