Big Lots 2013 Annual Report Download - page 151

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If we are unable to compete effectively in the growing online retail marketplace, our business and results of operations may
be materially adversely affected.
We are in the early stages of developing our online retailing capability and our online functionality and operations will not be
fully implemented until after 2014. 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 planning efforts include
the development of an online retailing capability 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 operating performance. If our online retailing initiatives do not meet our
customers’ expectations, it may reduce their desire to purchase goods from us both online and at brick and mortar stores and
may materially adversely affect our business and results of operations.
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.
For the closeout merchandise that we source for our business, we have very little control over the supply, design, function,
availability, or cost of many of the products that we offer 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.
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 2013, we
purchased approximately 27% of our products directly from overseas vendors including 23% 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 North America. 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.
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 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. 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. In addition, our new store locations receiving shipments may be
further away from our distribution centers which may increase transportation costs, accentuated by fuel prices and may create
transportation scheduling strains.