GameStop 2007 Annual Report Download - page 30

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We depend upon the timely delivery of products.
We depend on major hardware manufacturers, primarily Sony, Nintendo and Microsoft, to deliver new and
existing video game platforms on a timely basis and in anticipated quantities. In addition, we depend on software
publishers to introduce new and updated software titles. Any material delay in the introduction or delivery, or
limited allocations, of hardware platforms or software titles could result in reduced sales in one or more fiscal
quarters.
We depend upon third parties to develop products and software.
Our business depends upon the continued development of new and enhanced video game platforms, PC
hardware and video game and PC entertainment software. Our business could suffer due to the failure of
manufacturers to develop new or enhanced video game platforms, a decline in the continued technological
development and use of multimedia PCs, or the failure of software publishers to develop popular game and
entertainment titles for current or future generation video game systems or PC hardware.
Our ability to obtain favorable terms from our suppliers may impact our financial results.
Our financial results depend significantly upon the business terms we can obtain from our suppliers, including
competitive prices, unsold product return policies, advertising and market development allowances, freight charges
and payment terms. We purchase substantially all of our products directly from manufacturers, software publishers
and approximately five distributors. Our largest vendors worldwide are Nintendo, Sony, Microsoft and Electronic
Arts, which accounted for 21%, 17%, 16% and 11%, respectively, of our new product purchases in fiscal 2007. If
our suppliers do not provide us with favorable business terms, we may not be able to offer products to our customers
at competitive prices.
If our vendors fail to provide marketing and merchandising support at historical levels, our sales and
earnings could be negatively impacted.
The manufacturers of video game hardware and software and PC entertainment software have typically
provided retailers with significant marketing and merchandising support for their products. As part of this support,
we receive cooperative advertising and market development payments from these vendors. These cooperative
advertising and market development payments enable us to actively promote and merchandise the products we sell
and drive sales at our stores and on our websites. We cannot assure you that vendors will continue to provide this
support at historical levels. If they fail to do so, our sales and earnings could be negatively impacted.
The electronic game industry is cyclical, which could cause significant fluctuation in our earnings.
The electronic game industry has been cyclical in nature in response to the introduction and maturation of new
technology. Following the introduction of new video game platforms, sales of these platforms and related software
and accessories generally increase due to initial demand, while sales of older platforms and related products
generally decrease as customers migrate toward the new platforms. New video game platforms have historically
been introduced approximately every five years. If video game platform manufacturers fail to develop new
hardware platforms, our sales of video game products could decline.
Pressure from our competitors may force us to reduce our prices or increase spending, which could
decrease our profitability.
The electronic game industry is intensely competitive and subject to rapid changes in consumer preferences
and frequent new product introductions. We compete with mass merchants and regional chains, including Wal-Mart
and Target; computer product and consumer electronics stores, including Best Buy and Circuit City; other U.S. and
international video game and PC software specialty stores located in malls and other locations, such as Game Group
and Media Markt; toy retail chains; mail-order businesses; catalogs; direct sales by software publishers; and online
retailers and game rental companies. In addition, video games are available for sale and rental from many video
stores, such as Movie Gallery and Blockbuster. Video game products may also be distributed through other methods
which may emerge in the future. We also compete with sellers of used video game products. Some of our
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