Big Lots 2011 Annual Report Download - page 138

22
U.S. Segment
Merchandising
From a merchandising perspective, our competitive positioning as the largest broadline closeout retailer in the
U.S. affords us a strategic advantage when sourcing merchandise for our stores. We source our merchandise in
three key ways:
• Manufacturers and vendors have closeout merchandise for a number of different reasons including
other retailers canceling orders, other retailers going out of business, marketing or packaging
changes, a new product launch that has failed, and various other reasons. In these situations, we are
able to source product at a discounted cost and offer significant value to our customers. We currently
have thousands of vendor relationships for closeout inventory that have been developed over many
years. We believe these relationships and the size and financial strength of our company limit the
opportunities for other competitors to enter our retail segment.
• For certain merchandise categories, there is not always an abundant supply of closeout inventory. In
these situations, we may work with vendors to develop product, some of which is imported. Imports
total approximately 25% to 30% of our merchandise sales annually. Categories with the highest
concentration of imports include Seasonal, Furniture, and to a lesser extent the Home category and
the toys department.
• Our merchandise mix also includes replenishable and private or captive label products. This type
of merchandise is consistently available, and as a result, it can be offered in our stores on a regular
basis. This merchandise has many of the same characteristics as our closeout merchandise but
is reorderable upon demand. Our prices for replenishable and private or captive label products
are generally positioned below our competition, but to a lesser extent than our closeout sourced
merchandise.
We offer six major merchandise categories in our store: Consumables, Furniture, Home, Seasonal, Play ‘n Wear,
and Hardlines & Other. Consumables is the largest category at 30.6% of sales in 2011 and Hardlines & Other
is the smallest category at 8.3% of sales in 2011. In the third quarter of 2011, we realigned our merchandise
categories to be consistent with the realignment of our merchandising team and changes to our management
reporting. Prior to the third quarter of 2011, we reported sales in the former Hardlines category and the former
Other category. We moved the electronics department out of the former Hardlines category and repositioned
it in the former Other category, which was renamed Play n’ Wear. We also moved the results of certain large
closeout deals that are typically acquired through our alternate product sourcing operations out of the former
Other category and repositioned them in the former Hardlines category, which was renamed Hardlines & Other.
In recent years, our merchandising strategies to increase sales have been predominantly focused on increasing
the average transaction value. We have employed two primary methods to accomplish this goal: (1) drive
more units per transaction, and (2) grow the average item retail price by offering our customers better quality
merchandise, better values, and more prominent brand name products. This approach is consistent with our
customer research that suggests that our core customer recognizes quality and brands and is willing to pay
a higher retail price, so long as the value or cost savings is significant compared to what other retailers are
offering. This strategy has resulted in fewer cartons processed by our distribution centers and stores and has
achieved positive comparable store sales on an annual basis.
While executing our WIN Strategy, we have made measurable progress towards our goals of growing sales
per selling square foot (which increased from $146 per square foot in 2005 to $166 per square foot in 2011,
for our U.S. segment) and increasing gross margin dollars (which increased from $1,732 million in 2005 to
$2,046 million in 2011).
From a merchandising perspective, our goal in 2012 is to continue to provide extreme value, improved
quality, and expand the presence of recognizable brand name merchandise in our stores. We expect our major
merchandise categories will remain the same as in prior years but the percentage of business by category