‘They struggle to find their place’: What went wrong at Big Lots

The company’s losses in recent quarters — including $205 million in the first quarter — and its use of hundreds of millions of dollars of cash since 2022 to fund operations are among the reasons it said “substantial doubt” has been raised about its ability to continue operations. Retail analysts expect the company could file bankruptcy if its executives don’t make significant changes, but one suggests it’s still worth it for investors to hold on in case there is a miraculous turnaround or if the company becomes a “meme stock.”

In hopes of turning around the business, Bruce Thorn, president and CEO of Big Lots, said in a news release last month the company is focused on owning bargains, communicating value, increasing store relevance, retaining customers through omnichannel efforts and driving productivity. The company did not respond to a request for comment.

In the release, he said the current financial performance does not yet reflect efforts to improve operations in the first quarter. He expects that to show in the back half of the year.

“While we made substantial progress on improving our business operations in Q1, we missed our sales goals due largely to a continued pullback in consumer spending by our core customers, particularly in high-ticket discretionary items,” Thorn said. “We remain focused on managing through the current economic cycle by controlling the controllables.”

Sol Shenk founded what would become Big Lots in 1967. Shenk would buy merchandise, largely auto parts and vehicles, from production overruns and bankruptcies, according to his New York Times obituary published in 1994, which said he was also known for purchasing the remains of DeLorean Motors after its bankruptcy in 1982. In 2001, his company Consolidated Stores Corp. rebranded itself and several brands — Odd Lots, Mac Frugal’s and Pic ‘N’ Save — under the Big Lots name.

Today, the company sells a wide variety of products from furniture to toys and food items, which opens it up to a large number of competitors from discount stores like Ollie’s Bargain Outlet and T.J. Maxx as well as Target and Walmart.

Value proposition questioned

Analysts, however, aren’t showing much optimism about the company’s future.

“It doesn’t look as if they are going to be able to stop the bleeding anytime soon,” Neil Saunders, managing director of GlobalData Retail, told Modern Retail. “The financials are going in the wrong direction. This is a business that has suffered sales declines for a reasonable period of time, and what you come to expect is that, as you go forward, those declines start to moderate a bit and then you start to go back into growth, but Big Lots shows no signs of that happening.”

The company’s sales decreased for three consecutive years: 14% in 2023, 11% in 2022 and 1% in 2021. In 2020, sales increased 17%, which in financial filings the company attributed to an increase in demand for essentials such as food, health products and pet supplies in the beginning of the year and home goods at the end of the year as people spent more time at home.

While Big Lots blames inflation and its effects on consumer spending, other discount retailers like HomeGoods are not seeing the same sales declines and are instead growing. HomeGoods’ sales grew 6% this past quarter while Big Lots’ declined 10%.

According to Saunders, that suggests it’s not just a market problem but a Big Lots problem. “Big Lots isn’t expensive per se, but when you look at a lot of the things it sells, you can actually get very similar products, if not better products, cheaper at places like Walmart and Target,” Saunders said.

Saunders also attributes its current troubles to several strategy moves that didn’t pay off. For one, the company started to focus more on furniture, a market that declined over the past few years. He said the retailer also opened too many stores under the assumption sales growth would continue. In addition, it financed many of these decisions with loans and other forms of debt.

“If you’re a retailer that focuses your selling point about being great value for money and you’re not delivering on that, that’s a massive problem, and it’s especially a problem in today’s environment where consumers are very, very price conscious and they are shopping around more,” Saunders said.

Shrinking presence

In 2022, Big Lots opened 56 stores while still closing 62. At the time, the company said it planned to eventually open more than 500 stores after a decade-long pause on expansion. In 2024, however, Big Lots only announced plans to open three stores while closing dozens of locations.

“When you’re closing more stores than you’re opening, you’ve got problems,” Bill Read, evp of Alabama-based real estate brokerage Retail Specialists, said in a LinkedIn post. “There’s been a lot of talk about Big Lots as they struggle to find their place in the retail marketplace.”

Read said Big Lots stores have nicer locations and have improved their appearance since the Great Recession but they have lost the feel of a true discount or close-out store unlike competitor Ollie’s Bargain Outlet.

“When you go into an Ollie’s, it’s an older looking store, not as remodeled or refreshed — even the new ones are still sort of second-generation real estate — but you have tons of merchandise stacked high at rock bottom prices,” Read said in an interview. “And I think right now, you have a customer that’s feeling more squeezed and is looking for the perception of bargains and price.”

Facing high demand from retailers and low inventory, as Big Lots leases expire, landlords may instead turn to what they see as stronger tenants. Ben Terry, svp and director of portfolio leasing for Texas real estate firm Weitzman, said he just helped a landlord replace Big Lots in a shopping center near Dallas within the last year. Because Big Lots was not performing well, the retailer couldn’t commit to staying long term or paying market-rate rent, he said.

Because of inflation, “tenants that have been struggling historically over the last five-to-10-plus years, I think you’re going to see them start falling out,” Terry said.

Holding out for a miracle… or the next meme stock

While the business remains in peril, at least one analyst sees another way investors could see a return on investment.

Retail analyst Anthony Chukumba, managing director of Loop Capital Markets, had in previous months recommended investors sell their Big Lots stock. But in a July 11 note to investors, he instead advised them to hold on — only because he believes there is limited risk in keeping a stake just in case the company does manage to turn around or catches “meme stock fever” like Gamestop and AMC Entertainment did.

Chukumba fears, given the recent rise in “meme stock” investors, some may jump in on Big Lots based on conspiracy theories and not consider the fundamentals.

“Despite our upgrade, we continue to believe a bankruptcy filing is a very real — and likely growing — possibility for Big Lots, particularly given our view the voluminous recent media
coverage of the company’s ongoing travails will make consumers increasingly reluctant to shop at its stores, thereby creating a ‘self-fulfilling prophecy,'” Chukumba wrote.

“That said, our $1 price target continues to effectively represent the value of a ‘call option’ on Big Lots pulling off what in our opinion would be a near miraculous recovery.”