Sears 2014 Annual Report Download - page 7

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Item 1A. Risk Factors
Our operations and financial results are subject to various risks and uncertainties, including those described
below, which could adversely affect our business, results of operations and financial condition.
If we fail to offer merchandise and services that our members and customers want, our sales may be limited,
which would reduce our revenues and profits.
In order for our business to be successful, we must identify, obtain supplies of, and offer to our members and
customers, attractive, innovative and high-quality merchandise on a continuous basis. Our products and services
must satisfy the desires of our members and customers, whose preferences may change in the future. If we misjudge
either the demand for products and services we sell or our members' and customers' purchasing habits and tastes, we
may be faced with excess inventories of some products and missed opportunities for products and services we chose
not to offer. In addition, our sales may decline or we may be required to sell the merchandise we have obtained at
lower prices. This would have a negative effect on our business and results of operations.
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. 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.