Shutterfly 2010 Annual Report Download - page 16

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We may have difficulty managing our growth and expanding our operations successfully.
We have website operations, offices and customer support centers in Redwood City, California, and production facilities in Charlotte, North
Carolina and Phoenix, Arizona. Our growth has placed, and will continue to place, a strain on our administrative and operational infrastructure.
Our ability to manage our operations and growth will require us to continue to refine our operational, financial and management controls, human
resource policies and reporting systems.
If we are unable to manage future expansion, we may not be able to implement improvements to our controls, policies and systems in an
efficient or timely manner and may discover deficiencies in existing systems and controls. Our ability to provide a high-
quality customer
experience could be compromised, which would damage our reputation and brand and substantially harm our business and results of operations.
Competitive pricing pressures, particularly with respect to pricing and shipping, may harm our business and results of operations.
Demand for our products and services is sensitive to price, especially in times of economic slowdown and consumer conservatism. Many
external factors, including our production and personnel costs, consumer sentiment and our competitors’
pricing and marketing strategies, can
significantly impact our pricing strategies. If we fail to meet our customers’
price expectations, we could lose customers, which would harm our
business and results of operations.
Changes in our pricing strategies have had, and may continue to have, a significant impact on our net revenues and net income. From time to
time, we have made changes to our pricing structure, specifically for 4x6 prints, in order to remain competitive. Like 4x6 prints, many of our
other products are also offered by our competitors. If in the future, due to competitor activities or other marketing strategies, we significantly
reduce our prices on our products without a corresponding increase in volume, it would negatively impact our net revenues and could adversely
affect our gross margins and overall profitability.
We generate a significant portion of our net revenues from the fees we collect from shipping our products. For example, these fees
represented approximately 14%, 17% and 19% of our net revenues in 2009, 2008 and 2007 respectively. We offer discounted or free shipping,
with a minimum purchase requirement, during promotional periods to attract and retain customers. If free shipping offers extend beyond a
limited number of occasions, are not based upon a minimum purchase requirement or become commonplace, our net revenues and results of
operations would be negatively impacted. In addition, we occasionally offer free or discounted products and services to attract and retain
customers. In the future, if we increase these offers to respond to actions taken by our competitors, our results of operations may be harmed.
We face intense competition from a range of competitors and may be unsuccessful in competing against current and future competitors.
The digital photography products and services industries are intensely competitive, and we expect competition to increase in the future as
current competitors improve their offerings and as new participants enter the market or as industry consolidation further develops. Competition
may result in pricing pressures, reduced profit margins or loss of market share, any of which could substantially harm our business and results of
operations. We face intense competition from a wide range of companies, including the following:
●
Online digital photography services companies such as Kodak EasyShare Gallery (formerly known as Ofoto), Snapfish, which is a
service of Hewlett
-
Packard, American Greetings
’
Photoworks and Webshots brands, Vista Print, and others;
●
“Big Box” retailers such as Wal-Mart, Costco and others that are seeking to offer low cost digital photography products and services,
such as in-store fulfillment and self-service kiosks for printing; these competitors may, among other strategies, offer their customers
heavily discounted in
-
store products and services that compete directly with our offerings;
14