Sears 2013 Annual Report Download - page 7

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If our integrated retail strategy to transform into a member-centric retailer is not successful, our business and
results of operations could be adversely affected.
We are seeking to transform into a member-centric retailer through our integrated retail strategy, which is
based on a number of initiatives, including our Shop Your Way program, that depend, among other things, 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. In addition, one or more
of these initiatives may not be accepted by our members and customers, which may result in the Company's sales
being less than it anticipates; and no assurance can be given that our strategy and offerings will be successful and
will not have a material adverse effect on our reputation, financial condition and operating results.
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 in the U.S. and Canada. 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 members' and 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, including the impact of payroll tax and medical cost
increases on U.S. consumers, 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 members and 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