Sears 2011 Annual Report Download - page 7

Our integrated retail strategy is based on a number of initiatives, including our Shop Your Way Rewards
program, that depend on our ability to respond quickly to ongoing technology developments and implement new
ways to understand and rely on the data to interact with our members and customers in order to achieve expected
benefits.
If we do not successfully manage our inventory levels, our operating results will be adversely affected.
We must maintain sufficient inventory levels to operate our business successfully. However, we also must
guard against accumulating excess inventory as we seek to minimize out-of-stock levels across all product
categories and to maintain in-stock levels. We obtain a significant portion of our inventory from vendors located
outside the United States. Some of these vendors often require lengthy advance notice of our requirements in
order to be able to supply products in the quantities we request. This usually requires us to order merchandise,
and enter into purchase order contracts for the purchase and manufacture of such merchandise, well in advance of
the time these products will be offered for sale. As a result, we may experience difficulty in responding to a
changing retail environment, which makes us vulnerable to changes in price. If we do not accurately anticipate
the future demand for a particular product or the time it will take to obtain new inventory, our inventory levels
will not be appropriate and our results of operations may be negatively impacted.
If we are unable to compete effectively in the highly competitive retail industry, our business and results of
operations could be materially adversely affected.
The retail industry is highly competitive with few barriers to entry. We compete with a wide variety of
retailers, including other department stores, discounters, home improvement stores, appliances and consumer
electronics retailers, auto service providers, specialty retailers, wholesale clubs and many other competitors
operating on a national, regional or local level. Some of our competitors are actively engaged in new store
expansion. Online and catalog businesses, which handle similar lines of merchandise, and some of which are not
required to collect sales taxes on purchases made by their customers, also compete with us. In this competitive
marketplace, success is based on factors such as price, product assortment and quality, service and convenience.
Our success depends on our ability to differentiate ourselves from our competitors with respect to shopping
convenience, a quality assortment of available merchandise and superior customer service. We must also
successfully respond to our customers’ changing tastes. The performance of our competitors, as well as changes
in their pricing policies, marketing activities, new store openings and other business strategies, could have a
material adverse effect on our business, financial condition and results of operations.
Our business has been and will continue to be affected by worldwide economic conditions; a failure of the
economy to sustain its recovery, a renewed decline in consumer-spending levels and other conditions,
including inflation and changing prices of energy, could lead to reduced revenues and gross margins, and
negatively impact our liquidity.
Many economic and other factors are outside of our control, including consumer and commercial credit
availability, consumer confidence and spending levels, inflation, employment levels, housing sales and remodels,
consumer debt levels, fuel costs and other challenges currently affecting the global economy, the full impact of
which on our business, results of operations and financial condition cannot be predicted with certainty. These
economic conditions adversely affect the disposable income levels of, and the credit available to, our customers,
which could lead to reduced demand for our merchandise. Changing fuel and energy costs may have a significant
impact on our operations. We require significant quantities of fuel for the vehicles used by technicians in our
home services business and we are exposed to the risk associated with variations in the market price for
petroleum products. We could experience a disruption in energy supplies, including our supply of gasoline, as a
result of factors that are beyond our control, which could have an adverse effect on our business. Certain of our
vendors also are experiencing increases in the cost of various raw materials, such as cotton, oil-related materials,
steel and rubber, which could result in increases in the prices that we pay for merchandise, particularly apparel,
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