Big Lots

With almost 1,400 locations across the United States, Big Lots is one of the largest closed out retailers in the country. For decades, they've been one of the top choices for budget conscious cons As recently as three years ago, Big Lots looked to be on top of the world with soaring revenue and profits. In March of 2021, their stock price peaked at $70 per share, valuing the company at almost $2. 5 billion. But t In September of 2024, the company filed for Chapter 11 bankruptcy protection. Its shares were delisted from the New York Stock Exchange and will So what went wrong? How did America's iconic budget retailer go from record profits to bankruptcy in just three years? Having a large retailer is incredibly complicated. Companies With data analysis tools and techniques always advancing, you need to be constantly learning if you want to stay on top. Today'sponsor Brilliant provides the best way to do just that. 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Saul Schenck would go to wholesalers and distributors, asking them if they had any excess inventory they were having trouble selling. If a wholesaler had some inventory they couldn't sell to their traditional retail partners, they might be willing to sell it to Consolidated Stores for a massive discount. The wholesaler might even be willing to take a loss on t Let'say hypothetically that a wholesaler imported 10,000 was They overestimated demand, and their traditional retail partners only bought 9,000 of them at full price. Now the wholesaler has 1,000 was Sure, they could wait for their traditional retail partners to sell through their own stock, and eventually order more was But t In the meantime, these 1,000 was Consolidated Stores would go to the wholesalers and buy whatever they had difficulty selling for a massive discount. As a shopper, when you walk into the Consolidated Department Store, you'll be greeted by a wide selection of random stuff. It'somet You don't know what you'll find, but whatever you do will be far cheaper than what you would pay at a traditional retailer. Saul Schenck also went to liquidation sales of other retailers and companies had gone bankrupt, buying up large quantities of product at cheap prices. He was an opportunist who would buy just about anyt For example, when the DeLorean Motor Company went bankrupt in the 1980s, he bought 2,500 DeLorean cars from the bankruptcy liquidator. He gradually sold them to end customers at The original Consolidated Department Store in Col At first, he branded the stores as odd lots, because they sourced odd lots of inventory from wholesalers. Due to a trademark dispute, they eventually changed their name to Big Lots. Over the following decades, Big Lots expanded rapidly throughout the nation, but as they grew, their business model needed to change. When they only had a few stores, they were easily able to fill them up with odd lots of inventory. But at any given time, there's only a limited n As they expanded to many hundreds of locations, they had to start relying on pre-planned purchases for much of their product. They started selling food, mostly dry or canned food that can last on the shelves for a long time. Things The hope is that you'll come into Big Lots every week to buy groceries. W Over time, Big Lots became somet W They lacked the scale in negotiating leverage of the So for most food items, Big Lots' prices are actually slightly worse than Walmart. T W The final piece of the puzzle is furniture. Big Lots stores sell both patio and indoor furniture, everyt Most of the furniture is procured through traditional methods, not via odd lots, so their furniture prices typically aren't much cheaper than other retailers. Due to Big Lots' perception as a discount brand, and the extreme bargains they offer in some of their other merchandise categories, their customer base is disproportionately low income. Big Lots offers liberal in-store financing, as well as least-to-own options for customers with low credit scores. These financing options make the furniture attractive to low-income cons Big Lots separates its products into six categories, furniture, cons Furniture is pretty self-explanatory. Its sofas, beds, patio furniture, etc. Cons The seasonal category consists of Halloween, Christmas decorations, soft Home includes home decor, bedding, decorative pillows, fake plants, etc. Basically, decorative stuff you put around your house. The food category is pretty self-explanatory. It mostly consists of dry and canned food. Most Big Lots stores have little, if any, fresh produce. Finally, the hard home category includes kitchen appliances, vacu You can t If we look at the years leading up to the pandemic, Big Lots' consolidated revenue was pretty stable at about $5. 2 billion per year. In 2020, revenue surged 16% to more than $6 billion. Their operating profit more than doubled from about $150 million in 2019 to almost $400 million in 2020. W If we look at Big Lots' sales by segment, we can see that the biggest increases came from the furniture and soft home categories, w During the pandemic, many households saw their disposable income increase substantially. The government provided trillions of dollars of stimulus checks and enhanced unemployment insurance. For many low-income workers, the enhanced unemployment insurance was greater than what they had made before they were laid off. With restaurants, movie theaters, and pretty much all outdoor entertainment venues closed, the only t With not If you have to stay at home all day, you might as well make it as comfortable as possible. With their focus on furniture and home decor, Big Lots was perfectly positioned to benefit from t And finally, with the Federal Reserve having cut interest rates to near zero, Big Lots' financing partners also lowered their rates. T In March of 2021, Big Lots' share price reached $70. T Furniture are expensive purchases that last a long time. If you just bought a new sofa, it could be another 10 years before you feel the need to buy another. Due to low interest rates in government stimulus, the n Demand was pulled forward. By the end of 2021, so many people had just bought new furniture that they didn't need to buy anymore for the next few years. In 2022, furniture sales fell by 23% and soft home sales fell by 17%. At first, these sales n Revenue just fell down to pre-pandemic levels. However, the company made a n In 2021, the company built two massive new distribution centers to accommodate surging furniture demand. Once demand collapsed in 2022, these warehouses were underutilized. The market labor market conditions also forced Biglots to significantly increase the wages it paid to its employees. By 2023, Biglots' operating expenses had grown to $2. 1 billion, almost 20% greater than 2019 levels. Finally, in 2021, Biglots' board of directors authorized more than $400 million of stock buybacks. When companies have excess cash, they often repurchase their own stock on the open market. This reduces the n In T And because the stock price was at all-time In 2023, sales continued to decline in every product category. Consolidated revenue fell by 14%, bringing sales vol Remember that one of the main reasons that people shop at Biglots is for the treasure-hunting experience. You walk into the store not knowing what type of extreme bargains you might find. Recently, Biglots has been losing market share to extreme-value Chinese e-commerce sites As revenue declined and expenses increased, Biglots' profits collapsed. In 2023, the company incurred an adjusted operating loss of almost $600 million. With their cash on hand rapidly dwindling, Biglots filed for bankruptcy protection in September of 2024. The company also announced a closure of 344 stores nationwide. But that still leaves them with about 1,000 stores still operating business as usual. In the short term, the company will get a boost to their cash flow from these store liquidations. Even if they end up selling most of their inventory at a loss, t Of course, the company remains burned in by massive operating losses, and bankruptcy has severely limited its financing options. Biglots' only real hope for survival lies in a potential acquisition. The private equity firm Nexus Capital Management has agreed to purchase the company for $750 million. But the funds will be used to pay off Biglots' debt, not to benefit existing shareholders. And Nexus must secure financing from its own lenders to close the deal. And even if Nexus can't secure funding, why would they possibly want to buy t In a brief statement, Nexus expressed their aim to, quote, return t However, whether an extreme value brick-and-mortar retailer can be viable in an e-commerce world dominated by players Alright guys, that wraps it up for t What do you t Is it game over, or will Nexus be able to turn t Let us know in the comments section below. As always, thank you so much for watc Wall Street Millennial, signing out.