Big Lots 2010 Annual Report Download - page 97

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Our real estate strategy has also involved testing a new store layout for our existing fleet of stores in an effort
to improve our operating efficiency. In 2009, we tested the new store layout in approximately 20 locations. The
layout test was designed to improve the ease of shopping our stores, improve the sight lines within the store, and
feature Consumables more prominently in our stores. Surveyed customers indicated that these stores appeared
to be better organized, cleaner, brighter, more open, and generally presented merchandise more effectively.
Based on our evaluation of the test results, we expanded this program to an additional 105 stores in 2010. The
results of this expanded program were positive overall, but the results were somewhat mixed depending on the
attributes of the store (i.e., store management, extent of merchandise movement, or population density). In 2011,
we anticipate continuing this program in up to 75 stores, while incorporating what have we learned in the last
two years.
In 2011, we plan to continue our store growth efforts by again increasing the level of new store openings to
approximately 90 new stores and closing approximately 45 stores resulting in net store growth of 45 locations,
or a 3% increase of the current store base. Based on the market for these types of stores, we anticipate
approximately 60 to 65 of our store openings this year will be traditional stores and approximately 25 to 30 of
our store openings this year will be “A” location stores. Based on the positive results of our current “A” location
stores, we are confident that we can be successful with this new customer base, as we continue to improve the
quality of the shopping experience by offering our customers a stronger product assortment and raising our
store standards and customer service.
Cost Structure
Our goal each year is to continue to generate expense leverage (lower expenses as a percent of net sales).
We believe that several operational changes we have made, which we continue to refine, have significantly
contributed to the achievement of our leverage goals. Some of the operational changes made include:
• Controlled or reduced inventory levels at our stores and regional distribution centers.
• Purchased and distributed merchandise to our stores in optimal quantities and pack sizes to
minimize handling in our distribution centers and stores.
• Timed receipt of merchandise in stores closer to the expected display dates in order to avoid
excessive handling of merchandise.
• Increased the percentage of merchandise that arrives in our stores pre-ticketed and pre-packaged for
efficient display and sale.
• Refined our staffing and payroll scheduling models in our stores.
• Invested in energy management systems to actively control utility costs and reduce
energy consumption.
• Implemented several initiatives which lowered our distribution and outbound transportation
expenses, including the integration of furniture warehouses and fixture warehouse into the regional
distribution centers and re-negotiating carrier contracts.
As a result of these operational changes and certain other initiatives in the business, our overall expenses as a
percent of sales have declined by 510 basis points since 2005 (2010 expense rate of 33.4% versus 2005 expense
rate of 38.5%).
For 2011, we are forecasting an expense rate of 33.0% to 33.3%. Expense dollars are expected to decline, on
a per store basis, in the areas of advertising and utilities. Store expenses and distribution and transportation
expenses are expected to leverage as dollar growth in these areas is forecasted to be at a slower rate than our
anticipated sales growth. Partially offsetting this leverage, we believe costs will increase and deleverage in areas
such as occupancy, depreciation, and share-based compensation expense.