Big Lots Strategic Overview

Address:300 Phillipi Rd.P.O.Box 28512Columbus, OH 43228-0512 614-278-6800www.biglots.comSales: $3.87 billionStores: 1,380Strategic OutlookThe Company believes that recent trends in the retail industry are favorable to closeout retailers. These trends include consolidations within the retail industry as well as just-in-time inventory processes, which management believes resulted in a shift of inventory risk from retailers to manufacturers. In addition, to maintain their market share in an increasingly competitive environment, management believes that manufacturers are introducing new products and new packaging on a more frequent basis. The Company believes that these trends have helped make closeout retailers an integral part of manufacturers' overall planning and distribution processes. As a result, management believes that manufacturers are increasingly looking for larger, more sophisticated closeout retailers, such as the Company, that can purchase larger quantities of merchandise and can control the distribution and advertising of specific products.OperationsA large number of stores operate profitably in relative close proximity. For example, 526 of the total 1,380 stores operate in four states: California, Ohio, Texas and Florida. Management believes that there are substantial opportunities to increase store counts in existing markets as well as to expand into new markets.In connection with this process, the Company made certain improvements to the converted sites. The improvements made varied by location and included, among other things, painting, lighting retrofits, new signage (interior and exterior), new flooring, and updated restrooms. The Company believes that Big Lots is its most recognizable brand name and that this change offers numerous opportunities to increase brand awareness among customers, suppliers, investors, and the general public. The Company believes the change will also allow it to leverage its television advertising and other expenses.On May 16, 2001, the Company changed its name to Big Lots, Inc. In connection with the name change, 434 stores in total have been converted, including 380 stores previously operating under the names of Odd Lots, Mac Frugal's, and Pic 'N' Save, and 54 existing Big Lots stores located in conversion markets. As of the end of fiscal 2002, all of the Company's 1,380 stores were under the Big Lots name. The Company's stores are located predominantly in strip shopping centers throughout the United States. Individual stores range in size from 5,073 to 65,018 square feet and average approximately 27,000 square feet. In selecting suitable new store locations, the Company generally seeks retail space between 25,000 to 35,000 square feet in size. The average cost to open a new store in a leased facility during fiscal 2002 was approximately $725,000, including inventory.MerchandisingThe Company's stores are known for their wide assortment of closeout merchandise. Certain core categories of merchandise are carried on a continual basis, although the specific brand-names offered may change frequently. The Company's stores also offer a small but consistent line of basic items, strengthening their role as dependable, one-stop shops for everyday needs. In addition, the stores feature seasonal items for every major holiday. The Company purchases approximately 25% of its products directly from overseas suppliers, and a material amount of its domestically purchased merchandise is also manufactured abroad. AdvertisingThe Company uses a variety of marketing approaches to promote its stores to the public. These approaches vary by market and by the time of year. The Company promotes grand openings of its stores through a variety of print, radio, and television promotions. In general, the Company utilizes only those marketing methods that it believes provide a measurable return on investment. The Company's marketing program is designed to create an awareness of the broad range of quality, brand-name merchandise available at closeout prices, which provide customers a unique shopping experience as well as value. The marketing program utilizes a combination of printed advertising circulars and television advertising in all markets. In fiscal 2002, the company distributed approximately 46million multi-page circulars 26 weeks out of the year in all markets. The method of distribution included a combination of newspaper insertions and direct mail. These circulars are created by the Company and are distributed regionally in order to take advantage of market differences caused by climate or other factors. The circulars generally feature 35 to 50 products that vary each week. In fiscal 2002, the Company ran television advertising in certain markets based upon factors unique to each market, including the number of stores and the cost of local media. Multiple 30-second television spots were run per week, each of which featured highly recognizable, brand-name products. In-store promotions include periodic loudspeaker announcements featuring special bargains as well as in-store signage to emphasize the significant values offered to the customer. In fiscal 2003, the Company expects to distribute its circulars 25 weeks of the year. This is one circular fewer than fiscal 2002 due to the shift of Memorial Day in the month of May. In March of 2003, the Company began a national television campaign covering all stores in all markets for the first time. Stores with television coverage in fiscal 2002 will remain at their historical media target rating points, while new stores and markets in fiscal 2003 will have somewhat lesser television media weight. New 30-second television commercials have been produced for fiscal 2003 to build awareness and to promote the Big Lots brand. Historically, total advertising expense as a percent of total net sales has been approximately 2.5% to 3.0%.Net sales increased to $3.87 billion million for fiscal 2002 from $3,433.3 million for fiscal 2001, an increase of $435.2 million, or 12.7%. This increase resulted primarily from a comparable stores sales increase of 7.7%, with the remaining 5.0% growth driven primarily by sales from 87 new stores, offset in part by the closing of 42 stores. The Company attributes its comparable store sales increase of 7.7% to an increase in the dollar value of the average transaction of 4.9% and an increase in the number of customer transactions of 2.8%.The Company believes the increase in the number of customer transactions and the increase in the dollar value of the average transaction for fiscal 2002 may have resulted from several factors such as more reliable in-stock levels of consumables products, more productive advertising circulars, increased television advertising spending, the successful re-grand opening of 434 conversion stores since March 2001, and the introduction of furniture departments in 128 stores over the prior year. In terms of product categories, sales growth was broad based with positive comparable store sales increases across most major categories and strong gains in domestics, furniture, hardlines, consumables, toys, and home decor.

Big Lots Strategic Overview

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