Best Buy 2006 Annual Report Download - page 29

15
PART I
Our growth strategy includes expanding our business,
both in existingmarkets and by openingstores in new
markets.
Our future growth is dependent, in part, on our ability to
build or lease new stores. We compete with other retailers
andbusinesses for suitable locations for our stores. Local
land use, local zoning issues, environmental regulations
and other regulations applicable to the types of stores we
desire to construct may impact our ability to findsuitable
locations, andalso influence the cost of constructing and
leasing our stores. We also may have difficulty negotiating
leases or real estate purchase agreements on acceptable
terms. Failure tomanagethese and other similar factors
effectively will affect our ability to build orlease new stores,
which may have a material adverse effect on our future
profitability.
We seek toexpand ourbusiness in existing markets in order
to attain agreater overall market share. Because our stores
typically draw customers from their local areas, anew store
may draw customers away from our nearby existing stores
and may cause comparable store sales performance and
customer traffic at those existingstores to decline.
We also intend to open stores in new markets. The risks
associated with entering a new market include difficulties in
attracting customers due to a lack of customer familiarity
with our brand, ourlack of familiarity with local customer
preferences and seasonal differences in the market. In
addition, entry into new markets may bring us into
competition with new competitors or with existing
competitors with a large, established market presence. And
while we have a strong track recordof profitable new store
growth, we cannot ensure that our new stores will be
profitably deployed; as a result, our future profitability may
be materially adversely affected.
Risks associated with the vendors from whom our
products are sourced could materially adversely affect
our revenue and gross profit.
The products we sell are sourced fromawide variety of
domestic and international vendors. Global sourcing is
becomingan increasingly important part of our business
andpositively affects our financial performance. Our
20 largest suppliers account for approximatelythree-fifths of
the merchandise we purchase. If any of our key vendors fails
to supply us with products, we may not be able to meet the
demands of our customers andrevenue could decline. We
require all of our vendors to comply with applicable laws,
including laborand environmental laws, and otherwise be
certified as meeting our required vendor standardsof
conduct. Our ability to find qualified vendors who meet our
standards andsupply products in a timely and efficient
manner is a significant challenge, especia lly with respect to
goods sourced from outside the United States. Political or
financial instability, merchandise quality issues, trade
restrictions, tariffs, currency exchange rates, transportation
capacity and costs, inflation, outbreak of pandemics and
other factors relating to foreign trade are beyond our
control. These and other issues affecting our vendors could
materially adversely affect our revenue andgross profit.
We are subject tocertain regulatory and legal
developments which could have a material adverse
impact on our business.
Our regulatory and legal environment exposes us to
complex compliance and litigation risks that could
materially affect our operations and financial results. In our
majorglobal markets, we are subject to increasing
regulations, which increase ourcost of doing business. The
most significant compliance and litigation risks we face are:
•The difficulty in complying with sometimes
conflicting regulations in local, national or
international jurisdictions and new or changing
regulations that affect how we operate;
•The impact of changes in tax laws (or
interpretations thereof);
•The impact of litigation trends, including class
actions involving consumers and shareholders, and
labor and employment matters;and
•The significant uncertainties of operating globally,
including the costs and difficulties of managing
international operations, foreign currencies,
complex laws, contractual obligations and
intellectual property rights.