Big Lots 2014 Annual Report Download - page 86

8
If we are unable to compete effectively in the highly competitive discount retail industry, our business and results of
operations may be materially adversely affected.
The discount retail industry, which includes both traditional brick and mortar stores and online marketplaces, is highly
competitive. As discussed in Item 1 of this Form 10-K, we compete for customers, products, employees, real estate, and other
aspects of our business with a number of other companies. Some of our competitors have greater financial, broader distribution
(e.g., more stores and a current online presence), marketing, and other resources than us. It is possible that increased
competition, significant discounting, or improved performance by our competitors may reduce our market share, gross margin,
and operating margin, and may materially adversely affect our business and results of operations.
If we are unable to compete effectively in today’s omni-channel retail marketplace, our business and results of operations
may be materially adversely affected.
We are currently developing an omni-channel retail strategy, including our online retailing capabilities. With the continued
expansion of mobile computing devices, competition from other retailers in the online retail marketplace is expected to
increase. Certain of our competitors, and a number of pure online retailers, have established online operations against which
we compete for customers and products. It is possible that the increasing competition in the online retail space may reduce our
market share, gross margin, and operating margin, and may materially adversely affect our business and results of operations in
other ways. Our current strategic plan includes providing an omni-channel experience and online retailing capabilities, which
we intend to use to increase the volume of our total net sales. Development of an online retail marketplace is a complex
undertaking and there is no guarantee that the resources we apply to this effort will result in increased revenues or improved
operating performance. If our online retailing initiatives do not meet our customers’ expectations, the initiatives may reduce
our customers’ desire to purchase goods from us both online and at our brick and mortar stores and may materially adversely
affect our business and results of operations.
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 the U.S. 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.
We rely on manufacturers located in foreign countries for significant amounts of merchandise and a significant amount of
our domestically-purchased merchandise is manufactured abroad. Our business may be materially adversely affected by
risks associated with international trade.
Global sourcing of many of the products we sell is an important factor in driving higher operating profit. During 2014, we
purchased approximately 24% of our products directly from overseas vendors including 20% from vendors located in China,
and a significant amount of our domestically-purchased merchandise is manufactured abroad. Our ability to identify qualified
vendors and to access products in a timely and efficient manner is a significant challenge, especially with respect to goods
sourced outside of the U.S. Global sourcing and foreign trade involve numerous factors and uncertainties beyond our control
including increased shipping costs, increased import duties, more restrictive quotas, loss of most favored nation trading status,
currency and exchange rate fluctuations, work stoppages, transportation delays, economic uncertainties such as inflation,
foreign government regulations, political unrest, natural disasters, war, terrorism, trade restrictions (including retaliation by the
United States against foreign practices), political instability, the financial stability of vendors, merchandise quality issues, and
tariffs. These and other issues affecting our international vendors could materially adversely affect our business and financial
performance.