Big Lots 2010 Annual Report Download - page 82

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Disruption to our distribution network, the capacity of our distribution centers, and the timely receipt of
merchandise inventory could adversely affect our operating performance.
We rely on the ability to replenish depleted merchandise inventory through deliveries to our distribution
centers and from the distribution centers to our stores by various means of transportation, including shipments
by sea, rail and truck carriers. A decrease in the capacity of carriers and/or labor strikes or shortages in the
transportation industry could negatively affect our distribution network, the timely receipt of merchandise
and transportation costs. In addition, long-term disruptions to the national and international transportation
infrastructure from wars, political unrest, terrorism, natural disasters and other significant events that lead to
delays or interruptions of service could adversely affect our business. Also, a fire, earthquake, or other disaster
at one of our distribution centers could disrupt our timely receiving, processing and shipment of merchandise
to our stores which could adversely affect our business. As we continue to grow, we may face increased or
unexpected demands on distribution center operations, as well as unexpected demands on our distribution
network. In addition, new store locations receiving shipments that are increasingly further away from our
distribution centers will increase transportation costs and may create transportation scheduling strains.
Our inability to properly manage our inventory levels and offer merchandise that our customers want may
materially adversely impact our business and financial performance.
We must maintain sufficient inventory levels to operate our business successfully. However, we also must seek
to avoid accumulating excess inventory in order to maintain appropriate in-stock levels. As stated above, we
obtain approximately one quarter of our merchandise from vendors outside of the United States. These foreign
vendors often require lengthy advance notice of our requirements in order to be able to supply products in the
quantities that we request. This usually requires us to order merchandise and enter into purchase order contracts
for the purchase and manufacture of such merchandise well in advance of the time these products are offered
for sale. As a result, we may experience difficulty in responding to a changing retail environment, which
makes us vulnerable to changes in price and in consumer preferences. In addition, we attempt to maximize our
gross margin and operating efficiency by delivering proper quantities of merchandise to our stores in a timely
manner. If we do not accurately anticipate future demand for a particular product or the time it will take to
replenish inventory levels, our inventory levels may not be appropriate and our results of operations may be
negatively impacted.
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 35% of our current stores operate in
these states and 37% of our 2010 net sales occurred in these states.
Changes in federal or state legislation and regulations, including the effects of legislation and regulations
on product safety, could increase our cost of doing business and adversely affect our operating performance.
We are exposed to the risk that new federal or state legislation, including new product safety laws and
regulations, may negatively impact our operations and adversely affect our operating performance. Additional
changes in product safety legislation or regulations may lead to product recalls and the disposal or write-off
of merchandise, as well as fines or penalties and reputational damage. If our merchandise, including food and
consumable products, do not meet applicable governmental safety standards or our customers’ expectations
regarding quality or safety, we could experience lost sales, increased costs and be exposed to legal and
reputational risk. Our inability to comply on a timely basis with regulatory requirements, or execute product
recalls in a timely manner, could result in fines or penalties which could have a material adverse effect on our
financial results. In addition, negative customer perceptions regarding the safety of the products we sell could
cause us to lose market share to our competitors. If this occurs, it may be difficult for us to regain lost sales.