CompUSA 2013 Annual Report Download - page 15

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.
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. In 2013 pricing pressure continued to be prevalent in the markets we serve and we expect this to continue.
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.
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, “hack into” our systems 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.
While the Company believes it conforms to appropriate Payment Card Industry (“PCI”)
security standards where necessary for its
various businesses, any breach involving the loss of credit card information may lead to PCI related fines in the millions of dollars.
In the event of a severe breach, credit card providers may prevent our 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.
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, the efforts of “hackers”
and cyber criminals or other developments will prevent the compromise of our
customer transaction processing capabilities and our customers’
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.
Failure to adequately control fraudulent credit card transactions could increase our expenses. Increased sales to individual
consumers, which are more likely to be paid for using a credit card, increases our exposure to fraud. We employ technology
solutions to help us detect the fraudulent use of credit card information. However, if we are unable to detect or control credit card
fraud, we may suffer losses as a result of orders placed with fraudulent credit card data, which could adversely affect our business.
Our business depends largely on the efforts and abilities of certain key senior management. The loss of the services of one or more
of such key personnel could have a material adverse affect on our business and financial results
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Table of Contents
• The failure to timely and satisfactorily process manufacturers’
and our own rebate programs could negatively impact our customer
satisfaction levels
.
•
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
.
•
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.
•
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.
•
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.
• Our business is dependent on certain key personnel.