Famous Footwear 2013 Annual Report Download - page 17

2013 BROWN SHOE COMPANY, INC. FORM 10-K 15
ITEM 1A RISK FACTORS
Consumer demand for our products may be adversely impacted by economic conditions.
Worldwide economic conditions continue to be uncertain. Consumer confidence and spending are strongly influenced
by general economic conditions, including fiscal policy, changing tax and regulatory environment, interest rates, inflation,
consumer debt levels, the availability of consumer credit, the liquidity of consumers’ assets, health care costs, currency
exchange rates, taxation, energy costs, real estate values, foreclosure rates, unemployment trends, and the economic
consequences of military action or terrorist activities. Negative economic conditions generally decrease disposable
income and, consequently, consumer purchases of discretionary items like our products. Negative trends in economic
conditions also drive up the cost of our products, which may require us to increase our product prices. These increases
in our product costs, and possibly prices, may not be oset by comparable increases in consumer disposable income.
As a result, our customers may choose to purchase fewer of our products or purchase the lower-priced products of our
competitors, and our business, results of operations, financial condition, and cash flows could be adversely aected.
If we are unable to anticipate and respond to consumer preferences and fashion trends and successfully apply new
technology, we may not be able to maintain or increase our net sales and earnings.
The footwear industry is subject to rapidly changing consumer demands and fashion trends. Our products must appeal
to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change.
Accordingly, the success of both our wholesale and retail operations depends largely on our ability to anticipate,
understand and react to changing consumer demands and preferences. If we fail to successfully anticipate and respond
to changes in consumer demand and fashion trends, develop new products and designs, and implement eective,
responsive merchandising and marketing strategies and programs, we could experience lower sales, excess inventories
and lower gross margins, any of which could have an adverse eect on our results of operations and financial condition.
We operate in a highly competitive industry.
Competition is intense in the footwear industry. Certain of our competitors are larger and have greater financial,
marketing, and technological resources than we do; others are able to oer footwear on a lateral basis alongside
their apparel products; and others have successfully branded their trademarks as lifestyle brands, resulting in greater
competitive advantages to those competitors. Low barriers to entry into this industry further intensify competition by
allowing new companies to easily enter the markets in which we compete. Some of our suppliers further compound
these competitive pressures by allowing consumers to purchase their products directly through supplier-maintained
Internet sites and retail stores. In addition, retailers aggressively compete on the basis of price, which puts competitive
pressure on us to keep our wholesale prices low.
We believe that our ability to compete successfully in the footwear industry depends on a number of factors, including style,
price, performance, quality, location, and service, as well as the strength of our brand names. We remain competitive by
increasing awareness of our brands, improving the eciency of our supply chain and enhancing the style, comfort, fashion
and perceived value of our products. However, our competitors may implement more eective marketing campaigns, adopt
more aggressive pricing policies, make more attractive oers to potential employees, distribution partners and manufacturers,
or respond more quickly to changes in consumer preferences than us. As a result, we may not be able to compete successfully
in the future, and increased competition may result in price reductions, reduced gross margins, loss of market share, and an
inability to generate cash flows that are sucient to maintain or expand the development and marketing of our products,
which could adversely impact our financial results.
Our operating results depend on preparing accurate sales forecasts and properly managing our inventory levels.
Using sales forecasts, we place orders with manufacturers for some of our products prior to the time we receive all
of our customers’ orders to minimize purchasing costs, the time necessary to fill customer orders and the risk of non-
delivery. We also maintain an inventory of certain products that we anticipate will be in greater demand. At the retail
level, we place orders for product many months in advance of our key selling seasons. Adverse economic conditions
and rapidly changing consumer preferences can make it dicult for us and our retail customers to accurately forecast
product trends in order to match production with demand. If we fail to accurately assess consumer fashion tastes and
the impact of economic factors on consumer spending or to eectively dierentiate our retail and wholesale oerings,
our inventory levels may exceed customer demand, resulting in inventory write-downs, higher carrying costs, lower
gross margins, or the sale of excess inventory at discounted prices, which could significantly impair our financial results.
Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the quality
products that we require in a timely manner, we may experience inventory shortages. Inventory shortages may delay
shipments to customers (and possibly require us to oer discounts or costly expedited shipping), negatively impact
retailer and distributor relationships, adversely impact our sales results, and diminish brand awareness and loyalty.
We rely on foreign sources of production, which subjects our business to risks associated with international trade.
We rely on foreign sourcing for our footwear products through third-party manufacturing facilities primarily
located in China. As is common in the industry, we do not have any long-term contracts with our third-party foreign