Dive Brief:

• Big Lots is setting up a "pop-up" distribution center bypass network in Q3 and Q4 to help process its holiday imports and ship them direct to store, CEO Bruce Thorn said during the company's Q2 earnings call.
• The network consists of "a handful of DCs [near] our DCs" that will help expedite any inventory that "lingers," Thorn said. "For example, 98% of our Christmas trees come out of a Yantian port, so you want to make sure that it's prioritized in time."
• The bypass network is part of Big Lots' plan to prioritize holiday shipments in a volatile freight environment. Big Lots expects the environment will normalize in 2022. But at the moment, lead times are long, lasting four to eight weeks, Thorn said.

Dive Insight:

Big Lots is among a number of retailers that felt the pain amid port congestion, labor shortages, and other supply chain disruption this year.

"We know we left sales on the table in Seasonal over the past 12 to 18 months and we are heavily focused on recapturing those sales as we go forward," said Jonathan Ramsden, chief financial and administrative officer at Big Lots.

Companies are taking varied approaches to ensure holiday goods arrive in store. To name a few examples, Lowe's is placing larger orders with suppliers, Tractor Supply Company is adding distribution centers, and Geodis, Home Depot and Walmart are chartering their own ships.

Like other companies, Big Lots accelerated its supply chain investments in 2021. But unlike others, the retailer's focus is on creating dedicated facilities with unique purposes that can smooth the flow of goods.

In addition to creating a DC bypass network for holiday orders, the retailer is also opening two new forward distribution centers for bulky items, and specializing one of its regional distribution centers as the site for repacking less-than-caseload items.

Big Lots currently has five regional distribution centers, which the retailer calls RDCs, listed on its website. The facilities are located in Montgomery, Alabama; Columbus, Ohio; Durant, Oklahoma; Tremont, Pennsylvania; and Apple Valley, California.

During its Q4 earnings call in March, Big Lots announced it would invest in centralized repacking capabilities at its Columbus facility, thereby specializing its role within the supply chain. "These capabilities will help make our other regional distribution centers more efficient as they can focus on case picking," Thorn said at the time.

The retailer is using a similar strategy for its new forward distribution centers, which the company calls FDC. Big Lots added two FDCs this year, one in the Northeast and one in the Southeast of the U.S., and the company expects both will be fully operational in Q3 and Q4.

"What that does, it takes some of the big bulky stuff, like the furniture, the big pallets of stuff, away from that regional DC in Pennsylvania and ships it directly to the store in a much more seamless way," Thorn said on the August earnings call.

Big Lots plans to add more FDCs in the coming years "as they make sense in simplifying our distribution network," Thorn said in August.

And while some of the investments like the DC bypass network may be seasonal, many will last for years to come.

"We'll be in a much better supply chain network situation after our investments in supply chain," said Thorn.