Big Lots Tests Upscale Prototype

Discussion
Jun 01, 2009
Tom Ryan

By Tom Ryan

In a shift from the secondary,
low-traffic markets it typically operates in, Big Lots Inc. has opened a store
in a relatively upscale market in order to reach higher-end shoppers eyeing
bargains in the recession. Compared with the closeout retailer’s typical no-frills
stores, the Columbus, Ohio location also features wider aisles, improved merchandise
presentations, enhanced lighting and new signage emphasizing value.

The 35,000-square-foot store located in a former Linens N’
Things location in the Polaris Town Center is across from a mall whose tenants
include Saks, Macy’s, Brooks Brothers and Victoria’s Secret. The move comes
as Big Lots is gaining better access to real estate and better lease deals
than in the past due to numerous store closings over the last year.

"This is the kind of location
we couldn’t touch in the past," said CEO Steve Fishman in a statement. "Now
that our performance has improved and there is a good supply of valuable real
estate available, we can capitalize on prime real estate opportunities like
Polaris. We’ll feature the same great deals Big Lots customers have come to
expect — in an A-plus location and in our hometown."

Big Lots has also been gradually moving to improve its "rummage-sale
image," according to Dow Jones Newswire. Categories including electronics,
consumables and toys have been upgraded with better brands.

On a conference call, management said it is testing the prototype,
which opened two weeks ago, to see what can be applied to other locations.
Three stores opening in August and September will include many features from
the Polaris prototype. In particular, Mr. Fishman said the "entire marketing
inside the store" is different and should be particularly beneficial to
its other 1,300+ stores.

"Our customer comes to us with very limited if nothing
in mind to buy, spends over 30 to 35 minutes in our store and those kinds of
things," said Mr. Fishman. "How we market to them inside the store
and the communication, the message is really important."

The prototype comes as the company last week reported its
10th consecutive quarter of record EPS performance, and raised its full-year
estimates. It also plans to open 45 new stores in fiscal 2009 and that number
is likely to increase in upcoming years.

"Customer shopping patterns have likely changed, and
discounts and saving money are likely here to stay," said Mr. Fishman
on the call. "We’re more branded today than we’ve ever been before."

Discussion Questions: Is there a greater opportunity for
a closeout retailer such as Big Lots to reach more upscale customers and
still maintain their core shopper base? What changes will Big Lots have to
make to increase its upscale appeal? Will it need a separate banner, for
example, to make this work?

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22 Comments on "Big Lots Tests Upscale Prototype"


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Susan Rider
Guest
Susan Rider
11 years 11 months ago

Everyone loves a bargain and the myth that the influential people with money don’t is just that–a myth. Many of the wealthy are the tightest with money and seek out a bargain. But alas, things that they won’t put up with like disorganization, bad housekeeping, bargain-basement look and feel of store…many Big Lots look like garage sales, disorganized, disheveled, completely in disarray and very unclean. So, Big Lots will need to clean up their act for sure!

David Livingston
Guest
11 years 11 months ago

No separate banner needed. Aldi made the move to upscale locations so I think Big Lots can do so as well. Big Lots has been known as the mortician of commercial real estate. Since the economic downturn, a better class of real estate has become available. With consumers trading down and becoming smarter shoppers, this appears to be a good opportunity for Big Lots.

Pradip V. Mehta, P.E.
Guest
Pradip V. Mehta, P.E.
11 years 11 months ago

Consumers all over the world love bargains. This is particularly true in the U.S.A. Therefore, as a “closeout retailer,” if Big Lots can bring closeout items that higher-end shoppers prefer/like in only those stores that are located in upscale market areas, then I do not see why Big Lots cannot keep its core customer happy. The key is proper stock assortment and merchandise presentation.

David Dorf
Guest
11 years 11 months ago

It’s great that Big Lots has done so well, and it’s a perfect time to take advantage of real estate. But I can’t see Big Lots reinventing itself in upscale locations. I think a separate brand would have been a better choice. It’s tough to appeal to such different market segments.

Alison Chaltas
Guest
Alison Chaltas
11 years 11 months ago
Certainly there is room for close out and discount retailing in upscale neighborhoods. Just look at the success of Christmas Tree Shops and others that have targeted comfortable suburban and destination outlet centers. More certainly this is a perfect time for Big Lots to lock into prime real estate left vacant by others that are closing doors. Given it is now politically correct (and even trendy) to be outwardly frugal, the timing is right. It will be interesting to see how Big Lots handles the test in terms of product mix and in-store communication. In the current economy, even the wealthiest communities are flush with bargain hunters. The big question is what happens when consumers start spending again. Research shows the current recession is changing the American mindset and it will likely be a generation or more before we spend like we did over the past decade. However, Big Lots needs to tread carefully in the real estate grab. Marketing too hard around the current tough times could create only temporary loyalty and making that… Read more »
Dick Seesel
Guest
11 years 11 months ago

No reason why Big Lots can’t pursue this strategy, and no reason for them to change the nameplate either. Target has thrived for many years in more upscale, suburban developments and there is a clear cross-shopping audience for what Big Lots has to offer. They do need to ensure that the content mix is appropriate to the demographics by location in order for this growth strategy to work.

Bruce D. Sanders, Ph.D.
Guest
Bruce D. Sanders, Ph.D.
11 years 11 months ago

Big Lots, and others that try going upscale like this, would benefit from generating “thrill of the hunt” excitement for shoppers and prospective shoppers. It’s a motivator that has worked for Costco, with high-end merchandise at bargain prices, but available for only a limited time, and, at least for a time, worked well for Cost Plus World Market, with their tag line “You Never Know What You’ll Find.”

I’ve seen shoppers in this current economic situation attracted to inexpensive indulgences, and Big Lots might be one to fill the need. My guess is that this is the “message” Steve Fishman is talking about.

Phillip T. Straniero
Guest
Phillip T. Straniero
11 years 11 months ago

It seems to me that there are a number of other close-out retailers doing well in this economy…Steinmart, TJ Maxx, Marshalls, etc. I recall when ALDI first moved into the Chicago market in the mid to late ’70s their growth was fueled by middle- and upper-income households who decided that “thrifty was smart.”

Given the growth of other “treasure-hunt retailers” in the warehouse club and dollar store channels there is no reason why Big Lots will not succeed in the short and longer term economy. In fact today’s economy is probably a great time to secure new consumers who will most probably stay with you as the U.S. enters the “new economy.”

Paula Rosenblum
Guest
11 years 11 months ago

I agree with David Dorf–a different brand name would have been a better idea. But with regard to the persistence of close-out retailers (and BTW, don’t be fooled…Big Lots has more than a little private label merchandise in its assortment), can we spell TJ Maxx and Marshalls? Came into their glory during the recession of the early ’80s.

Jeff Hall
Guest
11 years 11 months ago

Given the likely permanence of frugality in today’s consumer mindset across demographics, Big Lots does have an opportunity to attract more upscale buyers. I believe this can be achieved under the same banner, though the brand will need to focus on a relevant product assortment within cleaner, better organized and more appealing retail environments than is found in its existing stores.

Janet Poore
Guest
Janet Poore
11 years 11 months ago

I love browsing around at Big Lots. You never know what you’ll find in there. It’s not a place to go if you’re looking for something specific, but it is a treasure hunt. I would love to see a more upscale Big Lots. You see Lexuses parked outside dollar stores. Why not Big Lots? I don’t know if I would have picked Columbus, OH for an upscale prototype test market, but we’ll see. I think I would have picked the Chicago area.

Doron Levy
Guest
Doron Levy
11 years 11 months ago

I never understood why discount retailers feel like they can open a store, pile in merchandise and expect it to sell. There is a difference between a retailer and a swap meet. Big Lots actually has a decent layout and I’m not sure why the have a ‘rummage sale’ reputation. I haven’t been to all locations, but the 2 that I visited in Florida seem well stocked and merchandised.

I would think that taking it upscale will only enhance and broaden their customer base. Everyone loves a good deal, doesn’t matter the demographics. But customers won’t come to a trough to shop. Discount doesn’t equal a big mess.

Lee Peterson
Guest
11 years 11 months ago

This is a classic case of moving to where your customers are (Retail 101), and due to the massive “trading down” we’re seeing in the marketplace, the upscale customer should be very interested in seeing BLs show up in their normal haunts. Great move. It also permits Big Lots to compete in a more head-to-head fashion with the likes of Target, an emulator for them, for sure. So, in a way, this should (they have to be successful of course) enable them to move the brand perception needle upwards as well–win win.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
11 years 11 months ago
The best early offering of “discovery shopping” was Wacammaw Pottery in Myrtle Beach, SC (’77-’01). It was a tourist destination, with average shopping trips averaging about three hours with an average ring of more than $70 in the mid-80s (when I was doing their advertising). Something new and in limited supply around every corner of the huge store. They had a custom glassware etching department with six artisans kept busy throughout the day. What a concept. Since Waccamaw’s innovative pioneering of the discovery shopping concept, most retailers have incorporated it in limited ways. Big Lots took the idea downscale in a big way, mining a rich niche also explored by Aldi, dollar-type stores, and others. But what about Overstock.com? Upscale offerings accompanied by upscale advertising. What a great way to lead discovery shopping back upscale, paving the way for Big Lots to do the same. But now Big Lots has customer experiences to overcome, a seemingly impossible task. Should they join this battle? Probably not. Repositioning a brand upscale is much more expensive and time-consuming… Read more »
Mike Romano
Guest
Mike Romano
11 years 11 months ago

I enjoy my local Big Lots and the reputation and perception they have achieved in the marketplace. I am torn between them staying focused on improving and excelling at their current format, or trying to enter another market segment. Historically, most of those attempts have dismal results. So, I’m not torn anymore…stay focused and maximize profitability and marketshare.

Cathy Hotka
Guest
11 years 11 months ago

The frugal have been mocked for years, but are on top right now. To Paula’s point, TJX had strong sales during the go-go years, and is doing well now. Customers who get a taste of discount sales (particularly men, who love Big Lots) won’t want to go back to the traditional high markups.

Brian Kelly
Guest
11 years 11 months ago

Dear Big Lots: Good luck with redesigning your selling model to appeal to a different consumer with different shopping behavior. How will the “Treasure Hunt” migrate across the tracks? Just don’t get confused and lose both your loyalist as well as the “aspirational” market too. Or you too will come to know why we say: “retail ain’t for sissies.”

Joel Warady
Guest
Joel Warady
11 years 11 months ago

For the upscale market, going to Big Lots is like a treasure hunt. The upscale buyer knows that they do not need to shop a Big Lots for economic reasons, but it doesn’t mean that they don’t enjoy finding the bargain opportunities. This is a great strategy for Big Lots. It will allow them to capture new shoppers with new dollars, and at the same time won’t alienate their current customer base. Not to mention the fact that the commercial retail space can be had for a song right now due to store closings. What better time to try and enter these markets? The barrier to entry is low or non-existent for Big Lots.

Jerry Gelsomino
Guest
11 years 11 months ago

I applaud the idea. It may not work everywhere, but in some markets, the parking lots will be filled with Mercedes and BMWs, as well as pick-ups. Everybody likes a bargain and everyone likes the sense of adventure in finding one diamond among the glass beads–so why not in an affluent market? I only urge that the store stay clean, and always treat the merchandise with respect. And the rest should be interesting and easy!

Kai Clarke
Guest
11 years 11 months ago

Big Lots is moving away from its core (and very successful) focus. Why change a winning game? They have done well, despite this being a recessionary year, and instead of doing more of the same, they are spending resources on straying from their success, when most retailers cannot even stay alive. Big Lots is a successful retailer that has a model that is working, yet they are convinced that despite all of this they need to spend valuable resources on “upscale” retailing, when they are so successful with mass retailing.

Justin Time
Guest
11 years 11 months ago

Tuesday Morning is a more upscale closeout chain, and its stores are very much untidy and in disarray, but a bargain hunters treasure trove. Big Lots going more upscale is a great idea. Just don’t let the stores get too upscale and tidy.

Tim Henderson
Guest
Tim Henderson
11 years 11 months ago

Thanks to the recession, even upscale consumers are smarter about how to save at the POS. This consumers doesn’t view shopping at Big Lots as beneath them. Big Lots is teeing off the opportunity presented by the downturn to reach out to a new demographic with a new offering that (hopefully) resonates with that demo’s lifestyle and shopping needs and behaviors.

As for alienating the core Big Lots’ consumer, I don’t see that as a problem. Nor do I see any need to create a new nameplate for the concept. This prototype is about saving dollars on the goods consumers need every day, not about creating an air of exclusivity. The recession has, in many ways, created a more level playing field for consumers across all income brackets, especially when shopping for household basics. Upscale consumers have clearly indicated their willingness to cut back and be more practical in their purchasing behaviors. Big Lots fits the bill.

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