Sally Beauty Supply 2011 Annual Report Download - page 30

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maintain prices or may require us to reduce prices in efforts to retain business or marketplace share. Some
of our competitors have greater financial and other resources than we do and are less leveraged than our
business, and may therefore be able to spend more aggressively on advertising and promotional activities
and respond more effectively to changing business and economic conditions. We expect existing
competitors, business partners and new entrants to the beauty products distribution industry to constantly
revise or improve their business models in response to challenges from competing businesses, including
ours. If these competitors introduce changes or developments that we cannot address in a timely or
cost-effective manner, our business may be adversely affected.
In addition, our industry is consolidating, which may give our competitors increased negotiating leverage
with suppliers and greater marketing resources, resulting in a more effective ability to compete with us. For
instance, we may lose customers if those competitors which have broad geographic reach attract additional
salons (individual and chain) that are currently BSG customers, or if professional beauty supply
manufacturers align themselves with our competitors. For example, BSG’s largest supplier, L’Oreal, has
been able to shift a material amount of revenue out of the BSG nationwide distribution network and into
its own competitive regional distribution networks. L’Oreal has also acquired one manufacturer (that does
not currently do business with BSG) and distributors which compete directly with BSG in the southeastern
U.S., the midwestern U.S. and the west coast of the U.S. As a result, L’Oreal directly competes with BSG
and there can be no assurance that there will not be further revenue losses over time at BSG, due to
potential losses of additional L’Oreal related products as well as from the increased competition from
L’Oreal-affiliated distribution networks. If L’Oreal (or another direct competitor) were to acquire or
otherwise merge with another manufacturer which conducts business with BSG, we could lose that revenue
as well. Not only does consolidation in distribution pose risks from competing distributors, but it may also
place more leverage in the hands of those manufacturers to negotiate smaller margins on products sold
through our network.
If we are unable to compete effectively in our marketplace or if competitors divert our customers away
from our networks, it would adversely impact our business, financial condition and results of operations.
We may be unable to anticipate changes in consumer preferences and buying trends or manage our product lines
and inventory commensurate with consumer demand.
Our success depends in part on our ability to anticipate, gauge and react in a timely manner to changes in
consumer spending patterns and preferences for specific beauty products. If we do not timely identify and
properly respond to evolving trends and consumer demands in the marketplace for beauty products and
changing consumer demands our sales may decline significantly and we may be required to mark down
unsold inventory to prices which can be significantly lower than normal prices, which would adversely
impact our margins and could adversely impact our business, financial condition and results of operations.
In addition, we depend on our inventory management and information technology systems in order to
replenish inventories and deliver products to store locations in response to customer demands. Any
systems-related problems could result in difficulties satisfying the demands of customers which, in turn,
could adversely affect our sales and profitability.
We expect the aging baby boomer population to drive future growth in professional beauty supply sales
through an increase in the use of hair color and hair loss products. Additionally, we expect continuously
changing fashion-related trends that drive new hair styles to result in continued demand for hair styling
products. Changes in consumer tastes and fashion trends can have an impact on our financial performance.
If we are unable to anticipate and respond to trends in the marketplace for beauty products and changing
consumer demands, our business could suffer.
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