Big Lots Inc. said rather than raising prices as costs rise, it believes the better way to boost results in the current environment is to cut prices even more and offer a lot more “bargains and treasures.”
Shares of the discount home essentials retailer
tanked 7.8% in afternoon trading Thursday, in the wake of a wider-than-expected third-quarter loss, net and same-store sales falling more than forecast and a downbeat fourth-quarter outlook.
And gross margin contracted by nearly five percentage points, hurt by higher markdowns and higher freight costs.
Chief Executive Bruce Thorn said on the post-earnings conference call with analysts that its customers are being “pinched” by historically high inflation, as they have had to draw down on savings to pay for essentials.
“In particular, low income customers, whom we serve, have felt the most pain, and most are living paycheck-to-paycheck, and racking up more debt,” Thorn said.
So instead of trying to boost margins and the bottom line by raising prices, Thorn said the company is looking to cut costs and generate excitement with more bargains.
“Our company was built on providing phenomenal value and we’re leaning into it in a much bigger way,” Thorn said.
By the end of 2023, he said two-thirds of the stores’ assortment will be “bargains and treasures,” up from below 50% this year. Of that, “bargains” will be about 33%, up significantly from the current percentage in the mid-single-digit range.
“First, we will own bargains and treasures,” Thorn said. “Customers come to our stores for great deals and exciting products and we simply haven’t had enough of these, so we’re accelerating our efforts to optimize and differentiate our assortment with more bargains and treasures.”
And in furniture, where sales fell by a double-digit percentage as consumers delayed higher-priced purchases, he expects “nearly all” of the assortment to see price cuts in the first quarter.
Big Lots’ stock has dropped 16.3% over the past three months and has tumbled 60.1% year-to-date. In comparison, the SPDR S&P Retail exchange-traded fund
has lost 26.3% this year and the S&P 500 index
has declined 14.6%.