Dive Brief:

• Big Lots plans to open two distribution centers, operated by third parties, for the processing of palletized inventory and bulky items such as furniture, CEO Bruce Thorn said on the company's earnings call this month.
• It is also investing in centralized repacking capacity at its Columbus, Ohio, facility, which is meant to improve the retailer's picking process as its store count grows, Thorn said.
• "These capabilities will help make our other regional distribution centers more efficient as they can focus on case picking," Thorn said, adding that the investments will speed replenishment to stores and improve in-stocks on many items.

Dive Insight:

The two new distribution centers' focus on handling big and bulky items will help improve efficiency for Big Lots, as it sees increased e-commerce demand for items across the board.

"The type of items that are selling are anything from an Instacart order that will fit in the back of a trunk, all the way up to a Broyhill Sectional sofa," Thorn said. The furniture can be picked up in-store. Big Lots also began shipping inventory from its stores.

Fulfilling e-commerce orders through the store network requires a well-run process for replenishment, to ensure stores don't have issues with out of stocks. This is something that Target noted on its most recent earnings call, when it announced plans to open two new distribution centers and increase use of technology to improve replenishment.

Big Lots is adding technology to the mix, too. It will begin using a new space planning tool this year.

"Focusing on space productivity, we will have better analytical tools to impact future buy cycles, optimize floor plans per store, further optimize allocation and replenishment, and improve store compliance for planogram execution," Thorn said.

But as the retailer works to speed up and optimize its supply chain, it faces extended lead times from a clogged ocean freight network. Overall inventory, including in-transit inventory, was up about 2%. But inventory on hand was down about 5%.

"The 2% increase was driven by in-transit inventory, which continues to be substantially higher year-over-year as the company has increased its order volume to restore on-hand merchandise and accommodate longer lead times on imported merchandise," the company said in its financial filings.

CFO Jonathan Ramsden said the company expects freight issues to continue throughout the year.

"We definitely think it's going to be a full year headwind," Ramsden said when an analyst asked for comment on the ocean freight market. "There's no reason at this point to think that it's going to kind of abate in 2021. It will probably be in ‘22 before we start to see year-over-year relief on that, based on everything we're seeing and hearing and talking to our partners."