Big Lots 2013 Annual Report Download - page 152

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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 successfully operate our business. However, we also must seek to avoid
accumulating excess inventory to maintain appropriate in-stock levels. We obtain approximately one quarter of our
merchandise directly 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 operating profit
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 economy of the United States. 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 Soft Home, Hard Home, Home Decor & Furniture and Seasonal merchandise
categories may be threatened when disposable income levels are negatively impacted by economic conditions. Additionally,
the net sales of cyclical product offerings in our Seasonal category may be 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 33% of our current stores in our U.S. segment operate in these states and 35% of our
2013 net sales in our U.S. segment occurred in these states.
Changes in federal or state 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 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, state wage and
hour, and shareholder class action lawsuits, which may adversely affect our business and financial performance.
From time to time, we are 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, state wage and hour laws and federal securities
laws. We also are involved in shareholder derivative lawsuits and investigations concerning our compliance with
environmental and hazardous waste regulations. 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,
regardless of the outcome, these proceedings could result in substantial cost to us and may require us to devote substantial
attention and resources to defend ourselves. For a description of certain current legal proceedings, see note 10 to the
accompanying consolidated financial statements.