Big Lots

With almost 1,400 locations across the United States, Biglots 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, Biglots 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 this success would prove short-lived. 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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What would eventually become Big Lots was founded all the way back in 1967 in Col Consolidated Stores was a so-called closeout retailer. 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 this inventory just to clear up the space in their warehouse. Let'say hypothetically that a wholesaler imported 10,000 washing machines. They overestimated demand, and their traditional retail partners only bought 9,000 of them at full price. Now the wholesaler has 1,000 washing machines sitting in their warehouse. Sure, they could wait for their traditional retail partners to sell through their own stock and eventually order more washing machines. But this could take many months. In the meantime, these 1,000 washing machines are taking up valuable warehouse space, which may better used for new items, especially seasonal items. 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'something of a treasure hunt. 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 anything for the right price. 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 a Consolidated Department Store for a massive profit. 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. While you're at Big Lots grocery shopping, you might come across some random odd lot merchandise that you might be interested in. Over time, Big Lots became something of a hybrid between an odd lot closeout store and a traditional retailer. While this did help Big Lots achieve more mainstream appeal, as a traditional retailer, they didn't really have any competitive advantage. They lacked the scale in negotiating leverage of the So for most food items, Big Lots' prices are actually slightly worse than Walmart. This makes the value proposition of Big Lots somewhat confusing. While they indeed have extreme bargains on much of their odd lot merchandise, for most everyday items, you're probably better off buying from Walmart or a grocery store. The final piece of the puzzle is furniture. Big Lots stores sell both patio and indoor furniture, everything from chairs to sofas to beds. 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. 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 think of hard home as tools that you can use in your home. 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. While lockdown restrictions forced many businesses to shut down, Big Lots was deemed to be an essential retailer because it sells food and household staples, so they never had to close their stores. If we look at Big Lots' sales by segment, we can see that the biggest increases came from the furniture and soft home categories, which increased by 22% and 23% respectively. 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 thing people could really spend money on was things for their homes. With nothing else to do, many people began decorating their homes. 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 this. And finally, with the Federal Reserve having cut interest rates to near zero, Big Lots' financing partners also lowered their rates. This made it cheaper than ever to finance furniture purchases. In March of 2021, Big Lots' share price reached $70. This was the highest level the stock had ever reached since the company's IPO more than 30 years ago, but this success was not meant to last. 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. Despite labor market conditions, also forced big lots to significantly increase the wages it paid to its employees. By 2023, big lots' operating expenses had grown to $2. 1 billion, almost 20% greater than 2019 levels. Finally, in 2021, big lots' 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 hindsight, this was a disastrous decision. This buyback squandered most of the extraordinary profits they generated during the pandemic. And because the stock price was at all-time highs, they weren't even able to buy back that many shares. 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 big lots is for the treasure hunting experience. You walk into the store not knowing what type of extreme bargains you might find. Recently, big lots has been losing market share to extreme value Chinese e-commerce sites As revenue declined and expenses increased, big lots' profits collapsed. In 2023, the company incurred an adjusted operating loss of almost $600 million. With their cash on hand rapidly dwindling, big lots filed for bankruptcy protection in September of 2024. The company also announced the 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, this will still increase the company's cash balance as the inventory does not need the company remains burned in by massive operating losses, and bankruptcy has severely limited its financing options. The off big loss is dead, not to benefit existing shareholders. And to express their aim to, quote, return this iconic brand to its status as America's leading extreme value retailer.