Big Lots 2011 Annual Report Download - page 125

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distribution network. In addition, new store locations receiving shipments that are increasingly further away
from our distribution centers will increase transportation costs, driven by rising fuel prices, 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 North America. 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 economies of the United States and
Canada. 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 33% of our current
stores operate in these states and 36% of our 2011 net sales occurred in these states.
Changes in federal or state/provincial 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/provincial 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.
We may be subject to periodic litigation and regulatory proceedings, including Fair Labor Standards
Act and state wage and hour class action lawsuits, which may adversely affect our business and
financial performance.
From time to time, we may be involved in lawsuits and regulatory actions, including various collective or class
action lawsuits that are brought against us for alleged violations of the Fair Labor Standards Act and state wage
and hour laws. Due to the inherent uncertainties of litigation, we may not be able to accurately determine the
impact on us of any future adverse outcome of such proceedings. The ultimate resolution of these matters could
have a material adverse impact on our financial condition, results of operations, and liquidity. In addition,