Big Lots 2015 Annual Report Download - page 82

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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 represent an
important competitive advantage for our business. We believe that we have built strong relationships with many brand-name
vendors, and these relationships, along with our purchasing power, enable us to source merchandise that provides exceptional
value to our customers. One of the key factors in building our vendor relationships is our ability to purchase significant
quantities of closeout merchandise and then control its distribution throughout our broad store footprint, in accordance with our
vendor’s guidelines. We believe our sourcing model, along with our strong credit profile, provide 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 2015, 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 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. During 2015, we announced our intention to open a new distribution center in
California and relocating our existing California operations to this facility. This transition is anticipated to occur in 2018.
In addition to the regional distribution centers that handle merchandise, we operate a warehouse within our Ohio distribution
center that distributes fixtures 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 2015, we distributed multi-page circulars representing 31 weeks of advertising coverage, which
resulted in a one week increase from 2014. We create regional versions of these circulars to tailor our advertising message to
market differences caused by product availability, climate, and customer preferences. 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.
A newer element of our marketing approach focuses on brand management through 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 in-store signage, to emphasize special bargains and significant values offered to
our customers. Total advertising expense as a percentage of total net sales was 1.8%, 1.9%, and 1.9% in 2015, 2014, and 2013,
respectively.