Best Buy 2016 Annual Report Download - page 16

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As these and related competitive factors evolve, we may experience material adverse pressure on our revenue and profitability.
Consumer electronics products are highly susceptible to technological advancement and changes in consumer
preferences.
In general, consumer electronics product life cycles (which begin with initial market launch and conclude with maturity or
obsolescence) have become shorter and less predictable. This is largely due to rapid technological advancement and innovation
and generally faster adoption by consumers. Consumer preferences have also become susceptible to rapid change and this adds
to the unpredictability of our business. These factors affect us in a number of ways, for example:
• the emergence of new products and categories (for example, wearable devices);
• the rapid maturity and decline of relatively new categories (for example, tablets);
• cannibalization of categories (for example, the effect of smart phones on demand for GPS, mobile audio, digital
imaging devices, etc.);
• intense consumer interest in high-profile product updates (for example, smartphone model updates) which
concentrates purchasing activity around new launch dates;
• unpredictable consumer adoption rates (for example, contrasting adoption rates of 3D and Ultra-HD televisions);
• rapidly declining price-points in many categories (for example, digital imaging, Ultra-HD televisions, etc.); and
• availability of content (for example, Ultra-HD programming, online streaming services, sporting events or other
broadcast programming).
The effects of these factors can also be exacerbated by the competitive environment and the ease with which customers can
research and compare product features and price. If we fail to interpret, predict and react to these factors in a timely and
effective manner, the consequences can include:
• not offering the products and services that our customers want;
• having excess inventory, which may require heavy discounting or liquidation;
• not securing adequate access to brands or products for which consumer demand exceeds supply;
• delays in adapting our merchandising, marketing or supply chain capabilities to accommodate changes in product
trends; and
• damage to our brand and reputation.
These and other similar factors could have a material adverse impact on our revenues and profitability.
Our reliance on key vendors and mobile network carriers subjects us to various risks and uncertainties which could
affect our revenue and profitability.
We source the products we sell from a wide variety of domestic and international vendors. In fiscal 2016, our 20 largest
suppliers accounted for approximately 75% of the merchandise we purchased (73% in fiscal 2015), with 5 suppliers – Apple,
Samsung, Hewlett-Packard, Sony and LG Electronics – representing approximately 51% of total merchandise purchased (47%
in fiscal 2015). We generally do not have long-term written contracts with our vendors that would require them to continue
supplying us with merchandise or any other terms. Our profitability depends on us securing acceptable terms with our vendors
for, among other things, the price of merchandise we purchase from them, funding for various forms of promotional programs,
payment terms, allocations of merchandise, development of compelling assortments of products, operation of vendor-focused
shopping experiences within our stores and terms covering returns and factory warranties. To varying degrees, our vendors may
be able to leverage their competitive advantages -- for example, their financial strength, the strength of their brand with
customers, their own stores or online channels or their relationships with other retailers -- to our commercial disadvantage, with
a consequent adverse impact on our profitability. The potential adverse impact of these factors can be amplified by price
transparency (which can limit our flexibility to modify selling prices) and a highly competitive retail environment. Generally,
our ability to negotiate favorable terms with our vendors is more difficult with vendors where our purchases represent a smaller
proportion of their total revenues, consequently impacting our profitability from such vendor relationships.
We are also dependent on a relatively small number of mobile carriers to allow us to offer mobile devices with carrier
connections. The competitive strategies utilized by mobile network carriers can have a material impact on our business. For
example, if carriers change the structure of customer contracts, customer upgrade terms, customer qualification requirements,
monthly fee plans, cancellation fees or service levels, the volume of upgrades and new contracts we sign with customers may
be reduced, adversely affecting our revenues and profitability. In addition, our carriers also may serve customers through their
own stores, websites, mobile applications and call centers or through other competing retail channels. Carriers may decide to