Big Lots 2014 Annual Report Download - page 83

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Although reduced in certain categories, the sourcing and purchasing of quality closeout merchandise directly from
manufacturers and other vendors typically at prices below those paid by traditional discount retailers continues to be an
important part of our business. We believe that we have built strong relationships with many brand-name vendors and our
relationships and purchasing power enable us to source merchandise that provides exceptional value to our customers. We have
the ability to source and purchase significant quantities of closeout merchandise and to control distribution throughout our
nationwide store footprint, in accordance with vendor guidelines. We believe our sourcing model, along with our strong credit
profile, provides a high level of service and convenience to our vendors. We intend to continue to deepen our relationships
with our top 200 vendors. Our sourcing channels also include bankruptcies, liquidations, and insurance claims. We expect that
the unpredictability of the retail and manufacturing environments coupled with what we believe is our significant purchasing
power position will continue to support our ability to source quality closeout merchandise at competitive prices.
During 2014, we purchased approximately 24% of our merchandise directly from overseas vendors, including approximately
20% from vendors located in China. Additionally, a significant amount of our domestically-purchased merchandise is
manufactured abroad. As a result, a significant portion of our merchandise supply is subject to certain risks described in “Item
1A. Risk Factors” of this Form 10-K.
Warehouse and Distribution
The majority of our merchandise offerings are processed for retail sale and distributed to our stores from our five regional
distribution centers located in Pennsylvania, Ohio, Alabama, Oklahoma, and California. We selected the locations of our
distribution centers in order to minimize transportation costs and the distance from distribution centers to our stores. While
certain of our merchandise vendors deliver directly to our stores, the large majority of our inventory is staged and delivered
from our distribution centers to facilitate prompt and efficient distribution and transportation of merchandise to our stores and
help maximize our sales and inventory turnover rate.
In addition to the regional distribution centers that handle merchandise, we operate a warehouse, within our Ohio distribution
center, that distributes fixtures to our stores, and supplies to our stores and our five regional distribution centers.
For additional information regarding our warehouses and distribution facilities and related initiatives, see the discussion under
the caption “Warehouse and Distribution” in “Item 2. Properties” of this Form 10-K.
Advertising and Promotion
Our brand image is an important part of our marketing program. Our principal trademarks, including the Big Lots® family of
trademarks, have been registered with the U.S. Patent and Trademark Office. We use a variety of marketing vehicles to
promote our brand operations, including television, internet, social media, in-store point-of-purchase, and print media.
In all markets served by our stores, we design and distribute printed advertising circulars, through a combination of newspaper
insertions and mailings. In 2014, we distributed multi-page circulars constituting 30 weeks of advertising coverage, which was
consistent with promotions in multi-page circulars in 2013. We create regional versions of these circulars to tailor our
advertising message to market differences caused by product availability, climate, and customer preferences. A newer element
of our marketing efforts focuses on brand management in social and digital media outlets. We have devoted focused resources
to communicate our message directly to our core customers through Facebook®,Twitter®, Pinterest®, and YouTube®. A more
traditional element of our marketing program is our television campaign, which combines elements of strategic branding and
promotion. These same elements are also used in most of our other marketing media. Our highly-targeted media placement
strategy uses national cable as the foundation of our television advertising. In addition, we use in-store promotional materials,
including signage, to emphasize special bargains and significant values offered to our customers.
Our customer database, which we refer to as the Buzz Club®, is an important marketing tool that allows us to communicate in a
cost effective manner with our customers, including e-mail delivery of our circulars. In addition to the Buzz Club®, we operate
the Buzz Club Rewards® program (“Rewards”), which allows us to send specialized promotions to targeted customer groups
with the intention of reinforcing and expanding their desire to shop at our stores. Total advertising expense as a percentage of
total net sales was 1.9% in each of 2014, 2013, and 2012.