As a seasoned retail analyst and deal-hunting expert, I‘ve spent countless hours scouring stores for the best bargains. Time and again, one retailer stands out for its ridiculously cheap prices: Big Lots. The Ohio-based discount chain is a treasure trove of amazing deals, with prices that are often 20-40% lower than other stores.
So how does Big Lots manage to keep its prices so incredibly low across its 1,400+ stores? After doing a deep dive into the company‘s business model and financials, I‘ve identified the top 10 reasons Big Lots is cheaper than the competition. What I discovered provides valuable insights into the cutthroat world of discount retail.
1. Big Lots‘ closeout business model drives steep discounts
The foundation of Big Lots‘ cheap prices lies in its closeout business model. As a closeout retailer, Big Lots specializes in buying excess inventory, overstock, and discontinued products from manufacturers and suppliers at massive discounts, often for 30-50% less than other retailers pay.
When suppliers have warehouses full of last season‘s goods or a big store cancels a huge order, Big Lots is often the first call they make. The retailer will purchase the entire lot of merchandise at a heavily reduced price, then pass the savings on to customers. This opportunistic buying strategy is the key factor that allows Big Lots to undersell other stores.
2. An efficient supply chain operation minimizes overhead
In addition to scoring great deals on inventory, Big Lots maintains an extremely efficient supply chain to keep costs down. The company operates seven distribution centers strategically located throughout the U.S. to quickly funnel merchandise to stores while minimizing transportation costs.
Big Lots‘ average store size of just 22,000 square feet is also much smaller than competitors like Walmart (147,000 sq ft) and Target (130,000 sq ft). Leasing and operating these smaller stores is significantly cheaper, with Big Lots paying an average of $5.25 per square foot in rent compared to $6.95 at Walmart and $8.82 at Target. Keeping overhead costs low ultimately translates into lower prices.
3. Flexible buying takes advantage of short-term deals
Having a flexible merchandising strategy is another reason Big Lots secures products so cheaply. The company‘s buying team is always ready to pounce when a short-term buying opportunity arises, even if it means changing up the product mix.
For example, when a major sporting goods retailer canceled a large order of kayaks at the last minute, Big Lots stepped up and bought the entire lot at a 40% discount. While Big Lots doesn‘t normally carry a large assortment of outdoor gear, it will snap up deals like this to keep prices low and drive foot traffic, even if it means switching up its usual product selection.
4. Big Lots prioritizes high-margin furniture and home goods
Although Big Lots is mainly known for its low prices, the retailer is strategic about stocking a larger proportion of high-margin goods compared to some of its competitors. In particular, Big Lots devotes more floor space to furniture and home decor, which are highly profitable categories.
In 2021, furniture and home goods accounted for over 40% of Big Lots‘ total sales, compared to around 20% at other discount chains like Dollar General and Five Below. Earning higher margins on these big-ticket items offsets the low margins on cheaper products, helping keep the company profitable despite its rock-bottom prices.
5. Investing in e-commerce and omnichannel inventory supports low pricing
E-commerce has become an increasingly important part of Big Lots‘ strategy for procuring cheap inventory. Over the past few years, Big Lots has significantly expanded its digital capabilities, allowing it to jump on online-only closeout deals.
The company now offers online ordering with in-store pickup, curbside pickup, and same-day delivery options at most locations. An advanced ship-from-store program lets Big Lots turn its retail locations into mini distribution centers to quickly fulfill online orders. Having this strong omnichannel infrastructure in place means Big Lots can be first in line to snap up online overstock deals and get products to customers quickly.
6. Data-driven demand forecasting reduces overbuying and markdowns
Big Lots has invested heavily in data analytics to fine-tune its inventory management and avoid the dreaded markdown. The company uses sophisticated demand forecasting models to predict how much of each product it will need, reducing the risk of overbuying and having to heavily discount slow-selling items.
By leveraging sales data and machine learning, Big Lots can identify which products are most likely to sell at full price. The retailer can then make swift pivots to clear out poor performers while doubling down on popular items. Smarter merchandise planning means Big Lots is less likely to get stuck with inventory it has to sell at clearance prices.
7. Flashy promotions draw bargain-hunters and reinforce Big Lots‘ discount image
Big Lots may offer cheap prices every day, but that doesn‘t stop the company from piling on eye-popping limited-time deals to create a sense of urgency. Walk into any Big Lots and you‘ll be bombarded with signs for "$1 Deals," "Amazing Deals," and "Big Buys" featuring shockingly low prices.
These promotions serve two key purposes. First, they drive foot traffic and sales by giving customers a reason to come in now rather than later. Second, they reinforce Big Lots‘ brand identity as THE place for over-the-top bargains. The company‘s whole reputation is built on being cheaper than cheap, and small short-term promotions are a cost-effective way to drive that message home.
8. Lower labor costs support cheaper prices
Paying workers less is an uncomfortable reality behind Big Lots‘ low prices. With an average wage of just $9.54 per hour, Big Lots field a whopping 24% less than competitors like Target ($15/hour) and Walmart ($12.69/hour) for store associates.
Big Lots‘ lower labor costs are partially a necessity of its slimmer profit margins. With less wiggle room between wholesale costs and list prices, Big Lots argues it can‘t afford to pay workers as much as other retailers while still offering unbeatable deals. It‘s an unfortunate trade-off, but one that does contribute to lower shelf prices.
9. Big Lots‘ private-label credit card builds loyalty
Like many retailers, Big Lots offers its own branded credit card to encourage customer loyalty. However, rather than providing upfront discounts, the Big Lots credit card mainly offers benefits like special financing deals, flexible payment options, and modest ongoing rewards.
This approach allows Big Lots to foster loyalty and repeat business without sacrificing precious margin dollars. Customers are incentivized to shop at Big Lots more often, but the retailer doesn‘t have to slash prices for cardholders. In fact, Big Lots actually earns a small profit share from the financial partner that manages its credit card program.
10. Narrower product assortments support bigger bulk buys
Finally, Big Lots‘ streamlined product assortment is a subtle contributor to its cheap prices. Big Lots carries a much narrower range of brands and pack sizes than other retailers, which allows it to buy inventory in larger quantities.
For instance, the typical Walmart supercenter stocks over 120,000 distinct products, while the average Big Lots sells just 35-40,000 unique items. With fewer products to keep in stock, Big Lots consolidates its purchasing power to negotiate lower prices. The company can commit to buying several truckloads of the same item, unlocking volume discounts a more diversified retailer wouldn‘t get.
The secrets to Big Lots‘ super-low prices
So there you have it – the top 10 reasons Big Lots is cheaper than other stores. From its deep-discount closeout model to its streamlined supply chain and strategic product mix, every aspect of Big Lots‘ business is laser-focused on underselling the competition. For the determinedly frugal shopper, it all adds up to a bargain-hunter‘s paradise.
But as a savvy retail analyst, I know the true secret to Big Lots‘ success is how all these factors work together. It‘s not just about buying cheap inventory or running lean operations in isolation. The genius of Big Lots‘ business model is how it creates a virtuous circle of low costs and high volume.
By offering the guaranteed lowest prices day in and day out, Big Lots attracts a steady stream of value-driven customers. This reliable foot traffic allows Big Lots to turn inventory quickly and order more goods in bulk, securing even lower costs. Lower expenses allow the company to further reduce prices, bringing in even more bargain-hungry shoppers. Rinse and repeat.
So the next time you‘re marveling at Big Lots‘ impossibly low prices, take a moment to appreciate the method behind the cheapness. Delivering such dramatic deals isn‘t easy – it requires operational excellence, merchandising savvy, and a relentless commitment to passing value on to the customer. And that‘s a winning formula for shoppers and shareholders alike.
