Photo by Harrison Keely on Unsplash
August 9, 2024
Is Bargain Hunting Enough To Keep Big Lots Afloat?
Big Lots is celebrating National Bargain Hunting Week from Aug. 12-18, 2024, with daily “Bargain of the Day” offers featuring discounts of 20% to 75% on items like furniture, pet accessories, and personal care products. The event coincides with National Smile Week, a connection inspired by Debbie Keri-Brown, who created National Bargain Hunting Week to reflect the joy of finding deals. Big Lots aims to attract savvy shoppers with new closeouts, overstocks, and liquidations.
Holding this promotion will hopefully prove valuable to Big Lots’ branding and relevance and help bring it back to the forefront of consumers’ minds as a premiere discount retailer.
But Big Lots is on the verge of bankruptcy. The retailer is struggling financially and originally planned to close 35 to 40 stores this year amid concerns about a potential bankruptcy filing. Now, according to a regulatory filing, the company has increased this number to as many as 315 stores across the country.
“While the majority of our stores are profitable, we have made the difficult decision to close certain underperforming stores,” a company spokesperson said, as reported by CBS News.
The retailer has faced declining sales, a 10.2% drop in revenue between fiscal Q1 2023 and fiscal Q1 2024, and increased long-term debt. In Q1, the company reported a net loss of $205 million, which isn’t much better than a year before when it lost $206.1 million.
In June, Big Lots also filed a statement with the SEC that expressed doubts about its ability to continue operations, despite a recent partnership with Uber Eats. This statement is what originally sparked the bankruptcy rumors.
It read: “Based on our current cash and liquidity projections, and uncertainties with respect to the mitigating effect of management’s plans, the company has concluded there is a significant likelihood that it will be unable to comply with the Excess Availability Covenant under the 2022 Credit Agreement and the Term Loan Facility within the next 12 months, which raises substantial doubt about the company’s ability to continue as a going concern.”
In another effort to boost sales, the retailer acquired the entire inventory of Hearthsong, a well-known children’s toy brand, in February, aiming to boost its reputation for extreme bargains. This acquisition introduced over 500 new products, including indoor and outdoor toys, games, and crafts, all priced 50% to 70% below original retail prices.
Yet, despite recent strategies, Big Lots faces ongoing challenges in the retail market. Bargain hunting itself seems to be quite popular, however.
A recent survey conducted by Big Lots, in partnership with MarketVision Research, highlights the psychological benefits of bargain shopping and how it “offers consumers even more than budget saving.” According to the survey, 85% of shoppers enjoy the thrill of discovering deals, while 62% find the activity therapeutic. The survey also found that 69% of shoppers engage in bargain hunting out of habit, with popular categories including apparel, pantry staples, seasonal items, décor, furniture, and electronics.
Another recent survey concluded that “not only do shoppers experience a measurable ‘high’ from finding a good deal, but they’re also becoming increasingly savvy in their pursuit of savings. With 82% of Americans searching for deals more often than ever before, it’s clear that bargain hunting has become a national pastime of sorts.”
Furthermore, the act of bargain hunting has aftereffects, as the typical American enjoys a post-purchase high that lasts exactly 216 minutes, according to the study of 2,000 American adults. “That’s three and a half hours of pure bargain bliss,” the study noted.
But if Big Lots’ sales are declining, where are bargain hunters shopping?
In December 2023, PYMNTS claimed that “Ollie’s Bargain Outlet is standing out as the go-to place for discounts.” Financial reports at the time showed that the retailer had improved significantly in nearly all areas, with over 60% of its product categories yielding positive gains. In a more recent earnings report from June, Ollie’s also shared positive results, such as an increase of 10.8% in total net sales to $508.8 million and a net income increase of 49.6% to $46.3 million.
With more than 500 locations, Ollie’s benefits from a significant edge in securing deals across a wide range of products and suppliers. Its robust deal pipeline highlights the crucial role that bargains play in driving Ollie’s business, according to PYMNTS. Additionally, the Ollie’s Army membership program continues to expand, with “a nearly 5% increase compared to the previous year, making up over 80% of sales in the quarter,” as of last December.
Home Textiles Today also commended Ollie’s by explaining how “the chain saw visits jump 13.0% year-over-year in 2023, hitting the sweet spot among both budget-conscious consumers and rural shoppers.” Ollie’s trade area also includes a higher proportion of blue-collar suburbs and suburban Boomer regions compared to other discount and dollar store competitors. This “diverse audience base seems to be setting it apart from other discount retailers,” per Placer.ai.
TJX Companies, which is classified as an off-price department store corporation, also seems to be doing well when it comes to bargain shoppers. The brand’s “treasure hunt experience continues to broaden its appeal across income and age groups,” according to CEO Ernie Herrman during a recent earnings call. “Our off-price business model is extremely flexible and resilient and I believe we are set up for a long runway of exciting growth in our geographies around the world.”
And as noted by RetailWire BrainTrust member Jeff Sward, TJX just might have the most bulletproof business model in the retail market today.
Discussion Questions
As retailers like Big Lots face financial difficulties, how can discount stores use consumer psychology, such as the thrill of finding deals, to revitalize their brand and improve their financial health?
Given the success of competitors like Ollie’s Bargain Outlet and TJX, what strategies have they implemented that struggling retailers like Big Lots could adopt to address their financial issues?
With bargain hunting becoming increasingly popular, how can retailers offer significant discounts while maintaining profitability and adapting to economic challenges like inflation?
Poll
Loading …BrainTrust
James Tenser
Retail Tech Marketing Strategist | B2B Expert Storytelling™ Guru | President, VSN Media LLC
Cathy Hotka
Principal, Cathy Hotka & Associates
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
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Big Lots is in a world of pain. It is in a financial mess, having lost almost a fifth of a billion in its latest quarter alone. It is also losing market share at a dramatic rate which means the economics of stores and the business as a whole continue to unravel. This cannot be blamed on the market as other value players are performing relatively well. It is very much a Big Lots problem. The issue is that closing stores –and Big Lots has dramatically increased the number earmarked for closure – is not the key to success. It just shrinks the size of the problem, but the problem – which is a broken proposition and too much debt – remains. Sadly, bankruptcy still seems the most likely outcome.
The other thing I would add is that the ‘bargains’ at Big Lots are not really bargains. On consumables the chain is often more expensive than Walmart and Target. On a recent store check I even found Poppi soda that was cheaper in Whole Foods – yes, Whole Foods! Furnishings and furniture are often cheaper at HomeGoods and when bought on discount direct from brands like Ashley. Consumers are not stupid. They price compare and shop around.
Big Lots is the last survivor of what we used to call “close-out” stores in the previous millennium. Its recent announcements tell me that the format is in peril. No amount of management revamping is likely to help.
Here’s why I think that is: The originators of this format – Odd Lots in NYC was the model I knew best – actually purchased “odd” lots and close-outs of a variety of products from manufacturers and distributors who would otherwise be stuck with stale inventory. Since they bought super cheap, they could sell pretty cheap and make a nice profit.
That meant a continuously varying assortment of items, and a shopping experience that promised discovery and genuine bargains. Since there were only a few stores like this at first, the supply of interesting merchandise was sufficient to keep the stores compelling to bargain shoppers.
As more stores were added, the quantities of odd lots and close outs did not increase to keep pace. The available bargains had to be spread across many locations, diluting the impact for shoppers. After a time, chains like Big Lots needed to fill their shelves with other merchandise, and they tended to select off-brand, inexpensive and short-dated goods to maintain their bargain-price image.
In recent years, Big Lots seemed ensnared in that trap and could not fight its way out. The location near me (which is closing in a few days) came to resemble a dollar store, only with a much less compelling assortment.
Was this a failure of management? Not necessarily. This was a failure of a brilliant mom & pop format that grew to become unsustainable.
Unlike Big Lots, TJX prides itself on merchandising. There are seasonal displays throughout the store. None of the merchandise is on the floor. The folks who run Big Lots should visit some of their competitors’ stores.
Cathy, you’re so right – proper merchandising is what separates an exciting treasure hunt from the feeling that you’re sorting through unwanted garbage!
Cathy,
Ollie’s has just started to move into this area. Big Lots has started to clean up their stores more so than usual. I hope they do take a look at their competition more closely- there is room for this format, but they have to offer something different in presentation of product , etc to make themselves stand out in order to survive.
No store can survive on “the thrill of finding deals” unless they actually offer something of value (i.e. just being cheap isn’t enough). Stores in this category that thrive – or at least survive – have learned that lesson; disposable retailers that simply focus on buying/selling things for little have not.
Bargain Hunting is not enough to keep Big Lots afloat. “Bargains” are not hard to find, and bargains are nothing new at Big Lots. Db
Indeed. And the bargains are often not bargains! You can usually find cheaper (and better) elsewhere. Raises the question of what, exactly, the USP is!
Big Lots is not going to recover. They have made almost no changes in the face of a completely changed retail landscape; the likes of TEMU and SHEIN; and the big legacy and retailers including “bargain treasure hunt” offerings. Not to mention a model that is fading away.
There used to be a big lots in our area, and the few times I went in there it was a total mess. Old Point of Sale technology, messy aisles, indifferent associates.
Put a fork in this one, they are done.
There is no life preserver big enough to keep Big Lots afloat.
“Bargain hunting” is like motherhood and apple pie — who doesn’t like the concept? But it’s not enough to build a retail brand around the idea, without the right content and store experience. In its current financial straits, this isn’t going to do the job for Big Lots.
Not all is equal when it comes to “bargain hunting.” Execution, quality, and selection in the Big Lots version fail in today’s retail landscape. From Walmart to Amazon and online home goods stores, Big Lots cannot compete. There’s no excitement in Big Lots’ proposition; it often fails where it counts on price and ease of the shopping experience. Any turnaround requires a long runway and supportive balance sheet; Big Lots does not have such luxury.
Big Lots needs to tap into the thrill of bargain hunting more effectively, much like Ollie’s and TJX have done. They’ve made deal-hunting an experience, not just a transaction. Big Lots could create more engaging promotions and loyalty programs that reward frequent shoppers, turning their stores into a destination for savvy consumers. To maintain profitability, retailers must be strategic about pricing and inventory, using data to offer discounts that still cover costs, especially in an inflationary environment.