How Big Lots’s new Asian buying offices are mixing up its assortment

Customers aren’t the only ones hunting for bargains these days. The discount home goods store Big Lots last month opened international buying offices in Shanghai, China, and Ho Chi Minh City, Vietnam, with the goal of sussing out deals among its Asian suppliers and bringing new and cheaper products to market faster.

“Global sourcing is key to our ability to add newness and expanded assortment at extreme value prices for our shoppers,” Bruce K. Thorn, Big Lots president and CEO, said in a statement.

Thorn told shareholders back in March that Big Lots plans to grow bargains to 75% of sales by “procuring products directly from over-inventoried and distressed retailers and vendors, and through new factory direct sourcing partners domestically and overseas.”

But how does an international buying office work exactly, and how does their presence in a key supplier market translate into a fresher assortment and lower prices?

Golden opportunities: Juan Guerrero, chief supply chain officer for Big Lots, told Retail Brew that being closer to international suppliers will allow the company to move more quickly when there are opportunities to purchase items at a discount.

“They’re on speed dial with these factories, so that whenever there is an overrun of a product or even a product that’s made available that’s new that may not be going well…with another retailer, we’re there ready to go and do the buyout,” he said.

He cited manufacturing overruns and packaging and presentation changes as potential opportunities for getting a lower price on a good.

“There may be a style change that occurs that causes a very quick flip to occur in the market, and there’s leftover product that’s still very high quality and is discounted at a very low price,” he said.

One recent example is Big Lots’s purchase of Hearthsong Toys’s entire inventory, comprising 500 SKUs valued at $22 million, through a foreclosure sale. The company said it planned to sell these products at 50%–70% less than their original value.

Thorn said these efforts from the “Extreme Value Sourcing team” is “quickly expanding our relationship with vendors, both new and existing, and reclaiming our seat at the extreme value table,” while developing a steady “deal flow in our new extreme value pipeline.”

Replenishment blues: This strategy of swooping in at the last minute when there are opportunities for better deals from manufacturers is key to how discounters are able to offer such low prices. Yet over the last decade, Big Lots had pivoted away from this approach, embracing instead what Guerrero called a “replenishment model.”

So instead of continually mixing up its product mix based on the latest crop of closeouts or overruns, it was buying the same products over and over at a set price.

“Your biggest objective is to have good service levels and fill rates,” he said. “You’re not necessarily going for the lowest price and extreme bargains.” He added that a replenishment-focused model also isn’t conducive to the kind of “treasure hunt” experience that draws some customers to discounters.

But it wasn’t always this way. Guerroro said that Big Lots’s current push to offer more bargains and a more diverse assortment is a return to form.

Back in 2010, Big Lots relied heavily on closeout sales from domestic suppliers to source its low-price home goods. But over the last decade, it started relying more on imports and also replenishment. Now it’s pivoting back to this model, but in a more internationalized market.

“Obviously, the world has changed in terms of how sourcing was occurring back then,” he said. “To execute an extreme bargain model, we have to adjust to this new world of sourcing, and that includes having our own sourcing offices overseas.”