OfficeMax 2012 Annual Report Download - page 42

third-party manufacturers may prove to be unreliable, the quality of our globally sourced products may not meet
our expectations, such products may not meet applicable regulatory requirements which may require us to recall
those products, or such products may infringe upon the intellectual property rights of third parties. Furthermore,
economic and political conditions in areas of the world where we source such products may adversely affect the
availability and cost of such products. In addition, our proprietary branded products compete with other
manufacturers’ branded items that we offer. As we continue to increase the number and types of proprietary
branded products that we sell, we may adversely affect our relationships with our vendors, who may decide to
reduce their product offerings through OfficeMax and increase their product offerings through our competitors.
Finally, if any of our customers are harmed by our proprietary branded products, they may bring product liability
and other claims against us. Any of these circumstances could have an adverse effect on our business and
financial performance.
Intense competition in our markets could harm our ability to maintain profitability. Domestic and
international office products markets are highly and increasingly competitive. Customers have many options
when purchasing office supplies and paper, print and document services, technology products and solutions,
office furniture and facilities products. We compete with contract stationers, office supply superstores including
Staples and Office Depot, mass merchandisers such as Wal-Mart and Target, wholesale clubs such as Costco,
computer and electronics superstores such as Best Buy, Internet merchandisers such as Amazon.com, direct-mail
distributors, discount retailers, drugstores and supermarkets. In addition, an increasing number of manufacturers
of computer hardware, software and peripherals, including some of our suppliers, have expanded their own direct
marketing efforts. The other large office supply superstores have increased their presence in close proximity to
our stores in recent years and are expected to continue to do so in the future. In addition, many of our competitors
have expanded their office products assortment, and we expect they will continue to do so. We anticipate
increasing competition from our two domestic office supply superstore competitors and various other
competitors for print-for-pay and related services. Increased competition in the office products markets, together
with increased advertising, has heightened price awareness among end-users. Such heightened price awareness
has led to margin pressure on office products and impacted the results of both our Retail and Contract segments.
In addition to price, competition is also based on customer service, differentiation from competitors, the quality
and breadth of product selection and convenient locations. Some of our competitors are larger than us and have
greater financial resources, which afford them greater purchasing power, increased financial flexibility and more
capital resources for expansion and improvement, which may enable them to compete more effectively.
We may be unable to generate additional sales through new distribution opportunities or replace lost
sales. Our long-term success depends, in part, on our ability to expand our product sales in a manner that
achieves appropriate sales and profit levels. This could include selling our products through other retailers,
opening new stores or entering into novel distribution arrangements. We have also increased our investments and
resources in selling our service offerings and through our digital channel. Failure to increase our sales and further
utilize our core assets could result in company restructurings and associated charges relating to severance and
impairment of assets.
When we sell our products through other retailers we rely on those retailers to provide an appropriate
customer experience and our sales are dependent on the foot traffic and sales of the retail partner. Although we
may have influence over the appearance of the area within the store where our products appear, we have no
control over store marketing, staffing or any other aspects of our retail partners’ operations.
Although we frequently test new store designs, formats, sizes and market areas, if we are unable to generate
the required sales or profit levels, as a result of macroeconomic or operational challenges, we may not open new
stores. Similarly, we will only continue to operate existing stores if they meet required sales or profit levels. In
the current macroeconomic environment, the results of our existing stores are impacted not only by a reduced
sales environment, but by a number of things that are not within our control, such as loss of traffic resulting from
store closures by other significant retailers in the stores’ immediate vicinities. If our stores’ performance suffers,
we may be subject to impairment charges. In addition, if we are required to close stores, we will incur additional
costs. These items could adversely affect our financial results.
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