Big Lots 2012 Annual Report Download - page 89

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infrastructure from wars, political unrest, terrorism, natural disasters, governmental budget constraints 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 receipt, processing
and shipment of merchandise to our stores which could adversely affect our business. As we continue to expand
our operations, 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, accentuated 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 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 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, disposable income levels, and other conditions could lead to
reduced consumer demand for our merchandise thereby materially 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 unseasonable weather, natural disasters or terrorist activities and other matters that influence consumer
spending. Specifically, our Furniture, Home, and Seasonal categories are threatened when disposable income
levels are negatively impacted by economic conditions. Additionally, our cyclical product offerings in our
Seasonal category are threatened when we experience extended periods of unseasonable weather. In particular,
the economic conditions and weather patterns of four states (Ohio, Texas, California, and Florida) are important
as approximately 32% of our current stores operate in these states and 35% of our 2012 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.