Thinking big

The last few years have not been kind to the retail industry.

Ames Department Stores Inc. filed for Chapter 11 in August 2001. In January 2002, Service Merchandise announced it will cease operations after operating in bankruptcy for nearly three years. Kmart filed for Chapter 11 protection in January 2002 and closed nearly 300 stores.

With so many retail and discount stores closing or struggling to stay in business, it may seem the companies that remain competitive just need to dig in and ride out the recession. But that’s not what Big Lots is doing.

Instead, the Columbus-based company has chosen to reinvent itself in an effort to focus its branding message on a national level.

The company was founded in 1967 by Sol Shenk, who had a background in auto parts manufacturing. Shenk chose to stick with what he knew, and opened an auto parts store under the Big Lots name in Ohio. In 1970, the company began operating as Consolidated Stores; by 1982, annual revenue grew to $24 million.

That same year, the company launched the Odd Lots/Big Lots closeout retail chain, locating the first Odd Lots in Columbus. These were among the first broadline, closeout stores in the country. It works this way: When Heinz makes too much ketchup, you can find the overrun at Big Lots and buy a bottle at substantial savings. Closeout retailers also take merchandise that has been discontinued, undergone package changes or that are test market products.

By 2000, the company had several years of acquisitions, growth and changes in leadership under its belt, and Michael Potter stepped in as chairman and CEO of the $3.2 billion company with nearly 1,300 stores. Consolidated had five chains at that time: Mac Frugals, Odd Lots, Big Lots, Pic ‘N’ Save and K*B Toys; each with its own marketing and advertising needs.

Quarterly comparable sales numbers boasted some very modest increases, but also some decreases, and with stock prices dropping, it appeared this hodge podge of regionally branded stores needed unity to gather momentum.

A “new” company is born

Potter announced major restructuring changes in March 2001, included divesting the company of K*B Toys, changing the names of all its stores — as well as that of the company — to Big Lots, and placing a new focus on the customer.

That meant cleaning up less than spotless stores, refurbishing them with better lighting and equipment, revamping the merchandising supply system and improving customer service.

More than a year later, many of the changes are complete; others are still in the works.

“We have about 240 stores left to convert (to the Big Lots name) by this Christmas,” says Potter, who is excited by the marketing prospects of one national identity. “It is easier to be known nationally, and we can leverage our advertising, especially television.”

Potter says the company has been doing its marketing homework and determined there are more long-term benefits in television advertising than in its current means of advertising, store circulars.

“Studies show that television creates a brand more efficiently,” he says. “Especially three, four years down the road.”

Potter says only about 15 percent of the nation recognizes the Big Lots name, compared to a 90 percent recognition rate for Wal-Mart. That is why the company is turning to more television advertising with its spokesperson, Jerry Van Dyke.

“We want to increase brand awareness,” says Potter. “We’ve had very good response from the television ads we’ve already done, so we’ll continue to move in that direction.”

Give them what they want

To make the stores more attractive to current and prospective customers, the company asked people why they shopped there — or, more important, why they didn’t.

“We did a multiyear analysis based on detailed customer studies,” says Potter. “We asked what they liked and what they didn’t. Our noncustomers said there were too many barriers in place.”

Customers felt many of their expectations would not be met — expectations for customer service, product inventory and physical store standards — which the company is working feverishly to change. When it comes to inventory, Potter says consumers cannot expect the range of products offered by Target or Wal-Mart; that is simply not its mode of business or its target market.

“We are not ever going to offer as broad an assortment (as retail discount chains like Wal-Mart) from a selection standpoint,” he says.

However, the company has put together a list of more than 500 items guaranteed to stay in stock.

“Customers expect to find items like bathroom tissue, light bulbs, diapers and cleaning supplies,” he says.

By working with suppliers, the company has found a way to meet that expectation, although the brands may not always be the same.

“We wanted to find a way to satisfy our customers,” he says.

That’s not all Big Lots has done to improve its merchandise flow.

“Day after day we are relevant in our product offering mix,” says Potter. “Our flow is more consistent, and our front-end buying and distribution improvements have had the most important impact on our sales.”

And converted stores that were below the new, higher standards of cleanliness and service have undergone a substantial facelift. The result, says Potter, is not just happier customers, but happier employees, since employee break rooms were part of the redo.

“We have begun customer service initiatives, and our customers are noticing a significant difference in service,” he says. “And we are producing a wonderful environment to work in. The stores are cleaner, brighter and safer, and our associates are doing a better job.”

So what about the bottom line?

The “after” Big Lots definitely appears better than the “before.” But have these changes had the desired impact on the bottom line? If comparable store sales are an indication, the answer is a definite “yes.”

For the first time in nearly two years, the company experienced a sales increase in the double digits, reporting an increase of 14 percent for February. And Potter says new sales figures indicate the double-digit trend will continue.

Brad McGill, a financial analyst with Banc of America Securities in New York City, agrees the company’s restructuring initiatives appear to be paying off.

“We are beginning to see some signs of traction,” he says. “Comparable store sales are impressive, and fourth quarter numbers are in line with expectations. It appears they are heading in the right direction.”

But the company does not plan to rest on its laurels or remain satisfied with the status quo. Potter says it’s full steam ahead when it comes to expansion and growth.

“We are adding 90 stores this year, and will add a similar number every year for the next 10 years,” he says. “We plan to have a total of 2,500 stores at the end of 10 years.” How to reach: Big Lots Inc., (614) 278-6800 or