Petsmart 2012 Annual Report Download - page 18

10
manage disasters, security breaches, computer viruses or any other interruption of our information systems for a significant period
of time could disrupt our business.
We continue to invest in our information systems. Enhancement to or replacement of our major financial or operational
information systems could result in disruption of normal operating processes and procedures and have a significant impact on our
ability to conduct our core business operations. We can make no assurances that the costs of enhancement to or replacement of
our information systems will not exceed estimates, that the systems will be implemented without material disruption, or that the
systems will be as beneficial as predicted. If any of these events occur, the results of our operations could be harmed.
If we fail to protect the integrity and security of customer and associate information, our business could be adversely impacted.
The increasing costs associated with the implementation and on-going operation of our information security systems, such
as increased investment in technology, the costs of compliance with privacy and information security laws, and costs resulting
from potential data loss, could adversely impact our business. We also routinely possess sensitive customer and associate
information and, while we believe we have taken reasonable and appropriate steps to protect that information from security
breaches, data loss and computer viruses, if our security procedures and controls were compromised, unintentionally or through
cyber-attacks, it could harm our business, consumer confidence, reputation, operating results and financial condition, result in
litigation and may increase the costs we incur to protect against such information security breaches.
The disruption of the relationship with or the loss of any of our key vendors, including our vendors with whom we have exclusive
relationships, a decision by our vendors to make their products available in supermarkets or through warehouse clubs and
other mass and retail merchandisers, the inability of our vendors to provide quality products in a timely or cost-effective manner,
the availability of generic products, or risks associated with the suppliers from whom products are sourced, all could harm our
business.
Sales of premium pet food for dogs and cats comprise a significant portion of our net sales. Currently, most major vendors
of premium pet food do not permit their products to be sold in supermarkets, warehouse clubs, or through other mass and retail
merchandisers. If any premium pet food or pet supply vendor were to make its products available in supermarkets, warehouse
clubs and other mass or retail merchandisers, our business could be harmed. In addition, if the grocery brands currently available
to such retailers were to gain market share at the expense of the premium brands sold only through specialty pet food and pet
supply outlets, our business could be harmed.
We purchase a substantial amount of pet supplies from a number of vendors with limited supply capabilities, and two of our
largest vendors account for a material amount of products sold. We can make no assurances that we will be able to find new
qualified vendors who meet our standards, or that our current pet supply vendors will be able to accommodate our anticipated
needs or comply with existing or any new regulatory requirements. In addition, we purchase a substantial amount of pet supplies
from vendors outside of the United States. Effective global sourcing of many of the products we sell is an important factor in our
financial performance. We can make no assurances that our international vendors will be able to satisfy our requirements including,
but not limited to, timeliness of delivery, acceptable product quality, and accurate packaging and labeling. Any inability of our
existing vendors to provide products meeting such requirements in a timely or cost-effective manner could harm our business.
While we believe our vendor relationships are good, we have no material long-term supply commitments from our vendors, and
any vendor could discontinue selling to us at any time.
Many factors relating to our vendors and the countries in which they are located are beyond our control, including the stability
of their political, economic and financial environments, their ability to operate in challenging economic environments or meet our
standards and applicable U.S. and local legal requirements, the availability of labor and raw materials, labor unrest, merchandise
quality issues, currency exchange rates, trade restrictions, transport availability and cost, inflation and other factors. In addition,
Canada's and the United States' foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed
on certain countries, the limitation on the import of certain types of goods or of goods containing certain materials from other
countries and other factors relating to foreign trade are beyond our control. These factors affecting our vendors and our access to
products could adversely affect our operations and our financial performance.
Our expanded offering of proprietary branded products may not improve our financial performance and may expose us to
product liability claims.
We offer various proprietary branded products, for which we rely on third-party manufacturers. Such third-party manufacturers
may prove to be unreliable, or the quality of the products may not meet our expectations. In such event, we may have increased
exposure for quality-related claims or losses caused by such products. In addition, our proprietary branded products compete with
other manufacturers' branded items that we offer. As we continue to evaluate 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