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Company: Big Lots (BIG)
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  Despite Recovering Economy, Retailers Still Have Excess Inventory

In Q1 2010, retailers reported increasing sales growth as the economy showed signs of recovery. As a result, companies increased their inventory due to expected consumer rise in demand. However, in the second quarter (particularly April and May), sales slowed a bit, leading to a bunch of excess inventory, which has carried over through the summer months and into the fall. BIG relies on companies like Gap and Polo Ralph Lauren having excess inventory because BIG buys them at steeply reduced prices. More excess inventory means that BIG can offer more name branded items at big discounts. Many believe there is still a lot of excess inventory left in the market which will draw continued traffic into BIG stores.

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  Discounted Retailers Benefit from the Consumer Trade Down Effect during Recessions

A discounted retailer of home furnishings, Big Lots benefits from consumers who want to reduce spending during the current economic downturn. Because Big Lots is a national retailer of closeout merchandise, that is it obtains its products at extremely low prices from other company's production overruns, packaging changes, discontinuation of products, liquidations, and returns, it is able to sell brand named goods at a fraction of the costs. As a result, Big Lots attracts customers looking to maintain a certain standard while wanting to keep a few extra bucks in the bank. Big Lots as done extremely well compared to full-priced stores during the recession. In Q3 2009, the company's net income more than doubled compared to a year ago.

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  Recession Brings Lower-Priced Supply of Closeout Merchandise from Other Distressed Retailers

The soft retail environment and economic downturn of 2008 has hit many general retailers hard, pushing some into bankruptcy, such as in the case of Circuit City and KB Toys. As stores rush to liquidate the excess inventory from the weak Christmas holiday shopping season, BIG's supply of closeout merchandise has become larger as well as lower-priced, allowing it to have higher profit margins as the cost of acquiring merchandise is lowered.

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