Sears 2015 Annual Report Download - page 6

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 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, online and catalog retailers 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 and experience. 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.
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. 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, our relationship with our
members may be negatively impacted, and we may be faced with excess inventories of some products, which may
impact our sales or require us to sell the merchandise we have obtained at lower prices, and missed opportunities for
products and services we chose not to offer. 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 and our ability to provide attractive, convenient and consistent
online and mobile experience for our members. Failure to execute these initiatives or provide our members with
positive experiences may result in a loss of active members, failure to attract new members and lower than
anticipated sales.
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 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 quickly to a changing retail
environment, which makes us vulnerable to changes in price and demand. If we do not accurately anticipate the
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