Dollar General 2006 Annual Report Download - page 14

inventory and hire many temporary employees. A seasonal merchandise inventory imbalance
could result if for any reason our net sales during the Christmas selling season were to fall below
either seasonal norms or expectations. If for any reason our fourth quarter results were
substantially below expectations, our profitability and operating results could be adversely
affected by unanticipated markdowns, especially in seasonal merchandise. Lower than
anticipated sales in the Christmas selling season would also negatively affect our ability to
absorb the increased seasonal labor costs.
We face intense competition that could limit our growth opportunities and reduce our
profitability. The retail business is highly competitive. We operate in the discount retail
merchandise business, which is highly competitive with respect to price, store location,
merchandise quality, assortment and presentation, in-stock consistency, and customer service.
This competitive environment subjects us to the risk of reduced profitability because of the lower
prices, and thus the lower margins, required to maintain our competitive position. Also,
companies operating in the discount retail merchandise sector (due to customer demographics
and other factors) have limited ability to increase prices in response to increased costs (including
vendor price increases). This limitation may adversely affect our margins and profitability. We
compete for customers, employees, store sites, products and services and in other important
aspects of our business with many other local, regional and national retailers. We compete with
retailers operating discount, mass merchandise, drug, convenience, variety and specialty stores,
supermarkets and supercenter-type stores. Certain of our competitors have greater financial,
distribution, marketing and other resources than we do. These other competitors compete in a
variety of ways, including aggressive promotional activities, merchandise selection and
availability, services offered to customers, location, store hours, in-store amenities and price. If
we fail to respond effectively to competitive pressures and changes in the retail markets, it could
adversely affect our financial performance. See “Business” in Item 1 above for additional
discussion of our competitive situation.
Although the retail industry as a whole is highly fragmented, certain segments of the
retail industry have recently undergone and continue to undergo some consolidation, which can
significantly alter the competitive dynamics of the retail marketplace. This consolidation may
result in competitors with greatly improved financial resources, improved access to merchandise,
greater market penetration and other improvements in their competitive positions. These business
combinations could result in the provision of a wider variety of products and services at
competitive prices by these consolidated companies, which could adversely affect our financial
performance. Competition for customers has intensified in recent years as larger competitors
have moved into, or increased their presence in, our geographic markets. We remain vulnerable
to the marketing power and high level of consumer recognition of these larger competitors and to
the risk that these competitors or others could venture into the “dollar store” industry in a
significant way. Generally, we expect an increase in competition.
Natural disasters, unusually adverse weather conditions, pandemic outbreaks, boycotts
and geo-political events could adversely affect our financial performance. The occurrence of
one or more natural disasters, such as hurricanes and earthquakes, unusually adverse weather
conditions, pandemic outbreaks, boycotts and geo-political events, such as civil unrest in
countries in which our suppliers are located and acts of terrorism, or similar disruptions could
adversely affect our operations and financial performance. These events could result in physical
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