Big Lots 2012 Annual Report Download - page 103

23
U.S. Segment
Merchandising
From a merchandising perspective, we believe 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:
x 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 we have developed over many
years. We believe these relationships and the size and financial strength of our company give us a
competitive advantage.
x 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
totaled approximately 24% of our merchandise purchases in 2012. Categories with the highest
concentration of imports include Seasonal, Furniture, and to a lesser extent the Home category and
the toys department.
x 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 seven major merchandise categories in our store: Food, Consumables, Furniture, Home, Seasonal,
Hardlines & Toys, and Electronics & Other. Furniture is the largest category at 17.9% of sales in 2012
and Hardlines & Toys is the smallest category at 11.0% of sales in 2012. In the fourth quarter of 2012, we
realigned certain of our merchandise departments and categories to be consistent with the restructuring of our
merchandising teams and management structure. Please see the section “2012 Compared To 2011” below for
further discussion on the realignment of our merchandise categories.
During Mr. Fishman’s tenure, 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, if the value or cost savings remains significant compared to what other retailers are offering.
This strategy has resulted in fewer cartons processed by our distribution centers and stores, which has benefited
our cost structure.
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 $163 per square foot in 2012, for
our U.S. segment) and increasing gross margin dollars (which increased from $1,732 million in 2005 to $2,060
million in 2012, for our U.S. segment).
From a merchandising perspective, our goal in 2013 is to continue to provide extreme value, improve quality,
and expand the presence of recognizable brand-name merchandise in our stores. We expect our major
merchandise offerings will remain the same as in prior years but the percentage of business by category may
fluctuate based on customer demand and the availability of compelling deals that we are able to acquire. For
example in 2013, we will install coolers and freezers in a group of 75 stores regionally dispersed throughout
the country in order to test sales of frozen and refrigerated foods and beverages. The coolers and freezers test