Big Lots 2015 Annual Report Download - page 86

9
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, in certain merchandise categories 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 (e.g., the West Coast ports), disruptions 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 implementation of our online retail capabilities, we may face
increased or unexpected demands on distribution center operations, as well as new 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. During
2016, our normal activities will expand to include conducting sales transactions through an online channel. 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 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 suffered
serious security breaches, we may be vulnerable to data security breaches and data loss, including cyberattacks. A material
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 material 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. 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.