Advance Auto Parts 2010 Annual Report Download - page 27

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Supply Chain
Our store inventories are primarily replenished by shipments from our network of distribution centers, PDQ®
warehouses and HUB stores. As we service our growing store base, we will need to increase the capacity of our
supply chain network in order to provide the added parts availability under our Superior Availability strategy while
maintaining productivity and profitability expectations. We cannot be assured of the availability of potential
locations on lease or purchase terms that would be acceptable to us, of our ability to integrate those new locations
into our existing supply chain network or of our ability to increase the productivity and efficiency of our overall
supply chain network to desired levels.
We depend on the services of many qualified Team Members, whom we may not be able to attract and retain.
Our success depends to a significant extent on the continued services and experience of our Team Members. At
February 26, 2011, we employed approximately 51,000 Team Members. We may not be able to retain our current
qualified Team Members or attract and retain additional qualified Team Members that may be needed in the future.
Our ability to maintain an adequate number of qualified Team Members is highly dependent on an attractive and
competitive compensation and benefits package. If we fail or are unable to maintain such a package, our customer
service and execution levels could suffer by reason of a declining quality of our workforce, which could adversely
affect our business, financial condition, results of operations and cash flows.
Deterioration in general macro-economic conditions, including unemployment, inflation or deflation,
consumer debt levels, high fuel and energy costs, uncertain credit markets or other recessionary type
conditions could have a negative impact on our business, financial condition, results of operations and cash
flows.
Deterioration in general macro-economic conditions impacts us through (i) potential adverse effects from
deteriorating and uncertain credit markets (ii) the negative impact on our suppliers and customers and (iii) an
increase in operating costs from higher energy prices.
Impact of Credit Market Uncertainty
Significant deterioration in the financial condition of large financial institutions in 2008 and 2009 resulted in a
severe loss of liquidity and available credit in global credit markets and in more stringent borrowing terms. Our
overall credit rating may be negatively impacted by deteriorating and uncertain credit markets. The interest rates on
our revolving credit facility are linked directly to our credit ratings. Accordingly, any negative impact on our credit
rating would likely result in higher interest rates and interest expense on borrowed funds and less favorable terms on
other operating and financing arrangements. Additionally, we may be limited in our ability to borrow additional
funds to finance our operations. It is possible that one or more of the banks that provide us with financing under our
revolving credit facility may fail to honor the terms of our existing credit facility or be financially unable to provide
the unused credit. An inability to obtain sufficient financing at cost-effective rates could have a materially adverse
affect on our business, financial condition, results of operations and cash flows.
Impact on our Suppliers
Our business depends on developing and maintaining close relationships with our suppliers and on our
suppliers' ability and/or willingness to sell quality products to us at favorable prices and terms. Many factors outside
of our control may harm these relationships and the ability or willingness of these suppliers to sell us products on
favorable terms. One such factor is a general decline in the economy and economic conditions and prolonged
recessionary conditions. These events could negatively affect our suppliers’ operations and make it difficult for
them to obtain the credit lines or loans necessary to finance their operations in the short-term or long-term and meet
our product requirements. Financial or operational difficulties that some of our suppliers may face could also
increase the cost of the products we purchase from them or our ability to source product from them. We might not
be able to pass our increased costs onto our customers. In addition, the trend towards consolidation among
automotive parts suppliers as well as the off-shoring of manufacturing capacity to foreign countries may disrupt or
end our relationship with some suppliers, and could lead to less competition and result in higher prices. We could
also be negatively impacted by suppliers who might experience bankruptcies, work stoppages, labor strikes or other