Costco 2013 Annual Report Download - page 20

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reduced consumer confidence, changes related to government fiscal and tax policies, sovereign debt crises,
and other economic factors could adversely affect demand for our products and services or require a change
in the mix of products we sell. Prices of certain commodity products, including gasoline and other food
products, are historically volatile and are subject to fluctuations arising from changes in domestic and
international supply and demand, labor costs, competition, market speculation, government regulations,
taxes and periodic delays in delivery. Rapid and significant changes in commodity prices may affect our
sales and profit margins. These factors could also increase our merchandise costs and/or selling, general
and administrative expenses, and otherwise adversely affect our operations and financial results. General
economic conditions can also be affected by the outbreak of war, acts of terrorism, or other significant national
or international events.
We may not timely identify or effectively respond to consumer trends, which could negatively
affect our relationship with our members, the demand for our products and services, and our
market share.
It is difficult to consistently and successfully predict the products and services our members will demand.
Our success depends, in part, on our ability to identify and respond to trends in demographics and consumer
preferences. Failure to timely identify or effectively respond to changing consumer tastes, preferences
(including those relating to sustainability of product sources) and spending patterns could negatively affect
our relationship with our members, the demand for our products and services and our market share. If we
are not successful at predicting our sales trends and adjusting our purchases accordingly, we may have
excess inventory, which could result in additional markdowns and reduce our operating performance. This
could have an adverse effect on margins (net sales less merchandise costs) and operating income.
Vendors may be unable to supply us with quality merchandise at the right prices in a timely
manner or may fail to adhere to our high standards resulting in adverse effects on our business,
merchandise inventories, sales and profit margins.
We depend heavily on our ability to purchase merchandise in sufficient quantities at competitive prices. We
have no assurances of continued supply, pricing or access to new products, and any vendor could at any
time change the terms upon which it sells to us or discontinue selling to us. Member demands may lead to
out-of-stock positions of our merchandise leading to loss of sales and profits.
We purchase our merchandise from numerous domestic and foreign manufacturers and importers and have
thousands of vendor relationships. Our inability to acquire suitable merchandise on acceptable terms or the
loss of key vendors could negatively affect us. We may not be able to develop relationships with new vendors,
and products from alternative sources, if any, may be of a lesser quality or more expensive than those from
existing vendors. Because of our efforts to adhere to high quality standards for which available supply may
be limited, particularly for certain food items, the large volume we demand may not be consistently available.
Our suppliers are subject to risks, including labor disputes, union organizing activities, financial liquidity,
inclement weather, natural disasters, supply constraints, and general economic and political conditions that
could limit their ability to timely provide us with acceptable merchandise. For these or other reasons, one or
more of our suppliers might not adhere to our quality control, legal or regulatory standards. These deficiencies
may delay or preclude delivery of merchandise to us and might not be identified before we sell such
merchandise to our members. This failure could lead to litigation and recalls, which could damage our
reputation and our brands, increase our costs, and otherwise adversely impact our business.
Natural disasters or other catastrophic events could negatively affect our business, financial
condition and results of operations.
Natural disasters, such as hurricanes, typhoons or earthquakes, particularly in California or in Washington
state, where our centralized operating systems and administrative personnel are located, could negatively
affect our operations and financial performance. Such events could result in physical damage to one or more
of our properties, the temporary closure of one or more warehouses or depots, the temporary lack of an