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Big Lots has big expansion plans
Big Lots is planning to open 500 new stores over the next six-plus years after having gone a decade holding the units it operates at a relatively steady number.
The discount retailer, CNN reports, announced during an investor presentation that it plans to open around 50 new locations this year and then around 80 annually thereafter. The company’s management believes that consumers will be hungry for its selection of closeout and discounted merchandise and that stores will be the primary distribution channel.
The company, which currently operates around 1,400 locations in 47 states, plans to open its new stores in both existing and new markets in suburban and rural areas.
Big Lots has set a sales goal of $8 billion to $10 billion through a combination of the new stores, e-commerce growth and “merchandise sales productivity initiatives.” The retailer, in a press release, said that it expects to achieve operating margins of between six and eight percent as it leverages its buying power and takes other steps to improve its gross on every sale.
The chain reported that sales in November and December were up nine percent compared to the same period in 2019. Big Lots has seen its customer traffic and sales soften this month due to harsh weather across the U.S. and the spread of the Omicron variant. It is forecasting a flat to low-single digit sales increase over a two-year basis when its fourth quarter is completed.
Big Lots remains bullish on its prospects, weather and COVID-19 variants aside.
“We see a clear and long runway for growth ahead of us, coupled with the opportunity to drive returns through margin expansion and judicious capital allocation,” Bruce Thorn, president and CEO of Big Lots, said in a statement. “We have all of the foundations in place to accomplish this, including a seasoned and ambitious team, new tools and technologies, and a proven pipeline of innovation.”
The retailer on its third quarter earnings call said that its e-commerce sales were up around 300 percent for the first three quarters of 2022 compared to 2019. It began moving to more of a store fulfillment model, with 65 of its stores engaged in that capacity. Mr. Thorn said Big Lots is looking to grow its online business to $1 billion a year.
Discussion Questions
DISCUSSION QUESTIONS: Do you see an opportunity now for chains such as Big Lots to substantially add to their store count numbers? Do you agree that store expansion, perhaps in different formats, has become a necessity for retailers looking to achieve the optimum combination of online and offline sales?
Poll
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Prior to 2020, Big Lots was a reasonable but far from spectacular performer. Despite a number of strategic initiatives, it struggled to get total sales growth above the low single digit level. However the pandemic changed that: it brought new shoppers both because of out-of-stocks elsewhere and a greater desire for value. Expansion of ranges in growth categories like home furnishings (helped by the Broyhill furniture brand acquisition) also helped to increase transaction values and conversions. Given the rampant inflation and a more value-for-money oriented mindset, there is an opportunity for Big Lots to build on its success over the past couple of years.
Good point about high inflation Neil! Off-price and discount retail segments have done very well for several years and will continue to thrive, especially as consumers become more value conscious as their budgets get tighter with rising product prices. Big Lots is in a good position to capitalize on this trend, and they are making smart decisions such as using stores as distribution centers for their online business.
I’m bullish on Big Lots. With inflationary pressure squeezing consumers across the board, the low cost model that Big Lots has is ideal for the times. Expansion makes good sense, especially given the availability of quality real estate as a result of the impacts of closures and failures due to the pandemic. Even as the pandemic evolves into endemicity, there will still be lingering effects, and I believe Big Lots is well positioned and appropriately proactive about growth.
There has been recent data coming out showing that physical stores help drive e-commerce traffic, so a careful brick-and-mortar expansion plan within an omnichannel strategy can be a smart move. Additionally, given the increasing wealth divide in the U.S., discount and premium retailers will continue to succeed while middle range retail further erodes. All in all, it makes sense to me that Big Lots would expand its brick-and-mortar presence right now.
Big Lots’ purchase of the Broyhill furniture brand several years ago was instrumental in helping them expand their positioning beyond standard dollar store fare. Their new store formats have been very successful in bringing in more affluent shoppers, making them appealing to a broader range of communities. And the timing is right. As Big Lots and other retailers expand their e-commerce capabilities, the need to have stores closer to communities to reduce the cost of fulfillment is crucial. Big Lots has established a winning combination of smaller stores, mainstream brand offerings and low prices which will serve them well in their efforts to get their stores closer to more customers. Considering that 80 percent of total retail sales still happen inside of brick-and-mortar stores, any retailer who doesn’t have a plan for growing their physical presence is going to struggle with profit margins.
Big Lots, one of the original deep discounters, has a handle on how to run profitable stores and achieve comp-store sales, so this is a great next step for them.
We humans have a short memory. Over-expansion of store counts led to a great deal of the retail shrink from 2005 to today. A 30 percent increase in stores sounds very risky.
I like the Big Lots story and I think they are positioned for controlled growth but adding 500 stores on this timetable seems more than bullish, it sounds like the worst kind of retail hubris. Add stores? Sure, as needed and as strategic. Commit to 500 stores in this era of “no normal”? Doesn’t sound like a good plan. Strategic expansion is almost always good. Expansion for expansion’s sake is almost always a mistake.
Big Lots has a very sharp team running CRM/Loyalty. This informs their real estate development team to find communities where customers of similar value can be found at strong sustainable levels. Given store closures over the past several years commercial developers will be hungry to acquire Big Lots as a valued client and in turn support their footprint with optimum street visibility plus plenty of parking. Putting it out there that you plan to expand by 500 is a signal to those who are listening that they need to pay attention and proactively reach out in support of their vision.
No store will open without a strong prospect of success, the team at Big Lots is way too sharp to make that mistake. Future is very bright for a chain giving customers great value and selection.