Circuit City 2001 Annual Report Download - page 7

personnel with product suggestions to expand customer order values. In addition, the Company has developed a customer prospecting function
based upon geographic, economic and demographic data which enables Systemax to utilize its information systems to maintain and expand its
customer data files. The Company also operates telecommunications systems to support its sales, customer service and technical support
operations. Elements of the Company's telecommunications systems are integrated with the Company's computer systems to provide timely
customer information to sales and service representatives. The Company believes that its information systems enable it to enhance its flexibility
by promptly shipping customer orders, responding quickly to order changes and providing a high level of customer service and support.
The Company's success is dependent in large part on the accuracy and proper use of its information systems, including its telecommunications
systems. The Company expects to continually upgrade its systems to more effectively manage and improve its operations and customer
databases.
RESEARCH AND DEVELOPMENT
The Company's research and development teams design and develop products for Systemax's private label offerings. The individuals
responsible for research and development have backgrounds in engineering and industrial design.
This in-house capability provides important support to the private label offerings. Products designed include PCs, servers, furniture, ergonomic
monitor support arms, printer and monitor stands, wrist rests and other durable computer related products, storage racks and shelving systems,
various stock and storage carts, work benches, plastic bins and shop furniture. The Company owns the tooling for many of these products,
including plastic bins, computer accessories, furniture, and metal alloy monitor arms. See "Research and Development Costs" in Footnote 1 to
the Consolidated Financial Statements for further information.
COMPETITION AND OTHER MARKET FACTORS
PCS AND NOTEBOOK COMPUTERS
The North American and European computer markets are highly competitive, with many U.S., Asian and European companies vying for
market share. There are few barriers of entry to the PC market, with PCs being sold through the direct market channel, mass merchants, over
the Internet and computer and office supply superstores. Certain PC manufacturers that have traditionally sold to wholesalers via the
wholesale/retail sales channel are now marketing their products directly to end users in order to compete more effectively with established
direct marketers.
Timely introduction of new products or product features are critical elements to remaining competitive. Other competitive factors include
product performance, quality and reliability, technical support and customer service, marketing and distribution and price. There can be no
assurance that the Company will be able to maintain or improve its current competitive position with respect to any of these or other
competitive factors. Some of the Company's competitors have stronger brand-recognition, broader product lines and greater financial,
marketing, manufacturing and technological resources than the Company. Additionally, the Company's results could also be adversely affected
should it be unable to maintain its technological and marketing arrangements with other companies, such as Microsoft(R), Intel(R) and
Advanced Micro Devices(R).
Continued weakness in the global economy has led to a market-wide slowdown in PC sales. This slowdown has resulted in lower selling prices
among our competitors creating an extremely competitive environment that has affected and may continue to affect profitability over the short-
term. Our long-term view of the PC market, however, remains optimistic, although there can be no assurance that current economic conditions
will soon improve.
COMPUTER RELATED PRODUCTS
The North American computer related products market is highly fragmented and characterized by multiple channels of distribution including
direct marketers, local and national retail computer stores that carry computer supplies, computer resellers, mass merchants, computer and
office supply "superstores" and Internet-based resellers.
In Europe, the Company's major competitors are regional or country-specific retail and direct-mail distribution companies and Internet-based
resellers.
As with PCs, the slowing global economy has led to a highly competitive environment resulting in the overall reduction in retail prices for
computer related products which may adversely affect the Company's future revenues and profits. Additionally, the Company relies in part
upon the introduction of new technologies and products by other manufacturers in order to sustain long-term sales growth and profitability.
There is no assurance that the rapid rate of such technological advances and product development will continue.
INDUSTRIAL PRODUCTS
The market for the sale of industrial products in North America is highly fragmented and is characterized by multiple distribution channels
such as retail outlets, small dealerships, direct mail distribution, Internet
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based resellers and large warehouse stores. Systemax also faces