Big Lots has announced a Chapter 11 restructuring as it prepares for an acquisition by Nexus Capital Management. This move highlights significant problems within the company’s business model and the economic pressures it faces. As Big Lots navigates this transition, retail analysts weigh in on the potential outcomes and the challenges that lie ahead.
In previous analyses, Big Lots faced scrutiny over its heavy reliance on closeout merchandise and limited online presence, which proved disadvantageous as eCommerce grew. Comparatively, today’s insights highlight the same difficulties but emphasize the intensifying competition from rivals who offer more robust online and omnichannel experiences. These persistent issues suggest that Big Lots has struggled to adapt to the evolving retail landscape effectively.
Additionally, the economic downturn caused by the COVID-19 pandemic has compounded the company’s financial difficulties. Earlier reports indicated that Big Lots managed to stay afloat by optimizing its inventory and reducing costs. Current data, however, underscores a more dire situation with ongoing store closures and declining sales, pointing to a need for a more comprehensive restructuring approach.
Facing Digital Pressure
Sudip Mazumder from Publicis Sapient highlighted the company’s reliance on a traditional brick-and-mortar model, which became less appealing as consumers sought convenience and variety. The lack of a robust online presence has significantly hindered Big Lots in competing with digital-forward rivals.
“The company’s traditional brick-and-mortar model, heavily reliant on closeout merchandise, became less appealing to a market increasingly seeking convenience, variety, and unique offerings,” Mazumder said. “The rise of eCommerce and shifting consumer preferences caught Big Lots off guard, leaving it struggling to keep pace.”
Mazumder also mentioned that this digital shortfall placed Big Lots at a significant disadvantage in the omnichannel retail world. The company needs to adapt to the new retail landscape to stay competitive.
Shifting Consumer Spending
Retail analysts like Greg Zakowicz from Omnisend noted that consumers are increasingly turning to value-focused stores like Walmart, impacting Big Lots’ customer loyalty and sales. The shift in consumer behavior, driven by economic pressures, has led to decreased discretionary spending, affecting retailers without unique offerings.
“Without unique offerings, stores themselves become disposable. Businesses need something that sets them apart to weather times of consumer belt-tightening and not just exist in a world where they hope a series of small wins turns into something sustainable. Most of the time it doesn’t — just ask Sears,” Zakowicz said.
As consumers focus on essential purchases, stores like Big Lots face the challenge of enticing shoppers back for non-essential items. The current economic environment necessitates retailers to offer unique products to maintain customer loyalty and sustain their business.
Amanda Lai from McMillanDoolittle pointed out that Big Lots’ focus on discretionary categories like furniture and home decor has faced slowdowns in spending. To navigate these challenges, the company has been consolidating its real estate portfolio and optimizing its store footprint.
“Big Lots was slow to invest in the grocery category and faces fierce competition in this category against players like Aldi and Walmart who have slashed prices on hundreds of grocery items,” she said.
Despite these efforts, Big Lots continues to underperform compared to its competitors. The restructuring aims to provide financial stability and enable the company to move forward with new ownership that believes in its business potential.
As Big Lots undergoes restructuring, it plans to continue serving customers through its stores and online platform. The company will assess its store footprint and may close additional locations while optimizing its distribution model. These actions are part of a broader strategy to stabilize and revitalize the business under new ownership.
