Big Lots 2014 Annual Report Download - page 87

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Changes by vendors related to the management of their inventories may reduce the quantity and quality of brand-name
closeout merchandise available to us or may increase our cost to acquire brand-name closeout merchandise, either of which
may materially adversely affect our revenues and gross margin.
We have very little control over the supply, design, function, availability, or cost of much of the closeout merchandise that we
source for sale in our stores. Our ability to meet or exceed our operating performance targets depends upon the sufficient
availability of closeout merchandise that we can acquire and offer at prices that represent a value to our customers. To the
extent that certain of our vendors are better able to manage their inventory levels and reduce the amount of their excess
inventory, the amount of closeout merchandise available to us could be materially reduced. Shortages or disruptions in the
availability of closeout merchandise of a quality acceptable to our customers and us would likely have a material adverse effect
on our sales and gross margin and may result in customer dissatisfaction.
Disruption to our distribution network, the capacity of our distribution centers, and the timely receipt of merchandise
inventory could adversely affect our operating performance.
We rely on our ability to replenish depleted merchandise inventory through deliveries to our distribution centers and from the
distribution centers to our stores by various means of transportation, including shipments by sea, rail and truck carriers. A
decrease in the capacity of carriers and/or labor strikes / disruptions (e.g., the West Coast, including the port of Los Angeles,
disruption during the latter part of 2014 and early months of 2015) or shortages in the transportation industry could negatively
affect our distribution network, the timely receipt of merchandise and transportation costs. In addition, long-term disruptions to
the U.S. and international transportation 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. Additionally, as we seek to
expand our operation through the development of our online retail capabilities, we may face increased or unexpected demands
on distribution center operations, as well as unexpected demands on our distribution network.
If we are unable to secure customer, employee, vendor and company data, our systems could be compromised, our
reputation could be damaged, and we could be subject to penalties or lawsuits.
In the normal course of business, we process and collect relevant data about our customers, employees and vendors. The
protection of our customer, employee, vendor and company data is critical to us. We have implemented procedures, processes
and technologies designed to safeguard our customers’ debit and credit card information and other private data, our employees’
and vendors’ private data, and the Company’s records and intellectual property. We also utilize third party service providers in
connection with certain technology related activities, including credit card processing, website hosting, data encryption and
software support. We require these providers to take appropriate measures to secure such data and information and to assess
their ability to do so. Despite our procedures, technologies and other information security measures, we cannot be certain that
our information technology systems or the information technology systems of our third-party service providers are or will be
able to prevent, contain or detect all cyberattacks, cyberterrorism, or security breaches. As evidenced by other retailers who
have recently suffered serious security breaches, we may be vulnerable to data security breaches and data loss, including
cyberattacks. A breach of our security measures or our third-party service providers’ security measures, the misuse of our
customer, employee, vendor and company data or information or our failure to comply with applicable privacy and information
security laws and regulations could result in the exposure of sensitive data or information, attract a substantial amount of
negative media attention, damage our customer or employee relationships and our reputation and brand, distract the attention of
management from their other responsibilities, subject the company to government enforcement actions, private litigation,
penalties and costly response measures, and result in lost sales and a reduction in the market value of our common shares.
While we have insurance, in the event we experience a data or information security breach, our insurance may not be sufficient
to cover the impact to our business, or insurance proceeds may not be paid timely.
In addition, the regulatory environment surrounding data and information security and privacy is increasingly demanding, as
new and revised requirements are frequently imposed across our business. For example, during 2015, we will be required to
comply with new chip card standards. Compliance with more demanding privacy and information security laws and standards
may result in significant expense due to increased investment in technology and the development of new operational processes.