CompUSA 2010 Annual Report Download - page 63

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We have experienced rapid growth in retail stores in North America and to maintain their profitability we must effectively
manage our growth and cost structure, such as inventory needs, point of sales systems, personnel and lease expense.
We have 41 retail stores in North America at December 31, 2010. The Company needs to effectively manage its cost
structure in order to maintain profitability including the additional inventory needs, retail point of sales IT systems, retail
personnel and leased facilities. Future growth in retail will also be dependent on the ability to attract customers and build
brand loyalty. The retail computer and consumer electronics business is highly competitive and has narrow gross margins.
If we fail to manage our growth and cost structure while maintaining high levels of service and meeting competitive
pressures adequately, our business plan may not be achieved and may lead to reduced profitability.
The failure to timely and satisfactorily process manufacturers’ and our own rebate programs could negatively impact our
customer satisfaction levels.
Similar to other companies in the technology products industry, we advertise manufacturers’ mail-in rebates on many
products we sell and, in some cases, offer our own rebates. These rebates are processed through third party vendors and in
house. If these rebates are not processed in a timely and satisfactory manner by either third party vendors or our in house
operations, our reputation in the marketplace could be negatively impacted.
We may be unable to reduce prices in reaction to competitive pressures, or implement cost reductions or new product line
expansion to address gross profit and operating margin pressures; failure to mitigate these pressures could adversely
affect our operating results and financial condition.
The computer and consumer electronics industry is highly price competitive and gross profit margins are narrow and
variable. The Company’ s ability to further reduce prices in reaction to competitive pressure is limited. Additionally, gross
margins and operating margins are affected by changes in factors such as vendor pricing, vendor rebate and or price
protection programs, product return rights, and product mix. Pricing pressure continued to be prevalent in 2010 as a result
of the significant decline in economic activity in the markets we serve and we expect this to continue during this or any
period of sustained economic decline. We may not be able to mitigate these pricing pressures and resultant declines in
sales and gross profit margin with cost reductions in other areas or expansion into new product lines. If we are unable to
proportionately mitigate these conditions our operating results and financial condition may suffer.
We would be exposed to liability, including substantial fines and penalties and, in extreme cases, loss of our ability to
accept credit cards, in the event our privacy and data security policies and procedures are inadequate to prevent security
breaches of our consumer personal information and credit card information records.
In processing our sales orders we often collect personal information and credit card information from our customers. The
Company has privacy and data security policies in place which are designed to prevent security breaches, however, if a
third party or a rogue employee or employees are able to bypass our network security or otherwise compromise our
customers’ personal information or credit card information, we could be subject to liability. This liability may include
claims for identity theft, unauthorized purchases and claims alleging misrepresentation of our privacy and data security
practices or other related claims. Further, the Company has not yet achieved full compliance with the Payment Card
Industry (“PCI”) security standards. Without full compliance, any breach involving the loss of credit card information may
lead to PCI related fines of up to $500,000. In the event of a severe breach credit card providers may prevent the accepting
of credit cards. Any such liability related to the aforementioned risks could lead to reduced profitability and damage our
brand(s) and or reputation.
Failure to protect the integrity, security and use of our customers’ information could expose us to litigation and materially
damage our standing with our customers
The use of individually identifiable consumer data is regulated at the state, federal and international levels and we incur
costs associated with information security – such as increased investment in technology and the costs of compliance with
consumer protection laws. Additionally, our internet operations and website sales depends upon the secure transmission of
confidential information over public networks, including the use of cashless payments. While we have taken significant
steps to protect customer and confidential information, there can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography or other developments will prevent the compromise of our customer
transaction processing capabilities and personal data. If any such compromise of our security were to occur, it could have a
material adverse effect on our reputation, operating results and financial condition and could subject us to litigation.
Sales to individual customers expose us to credit card fraud, which impacts our operations. If we fail to adequately
protect ourselves from credit card fraud, our operations could be adversely impacted.