Circuit City 2003 Annual Report Download - page 8

weather at a location, we can shift inbound calls and/or order fulfillment and shipping to an alternate location. We
believe this provides us with important operating flexibility and protection from possible sales interruptions for our
North American businesses.
Europe
We have sales and/or distribution facilities in eight European countries and a central office in the United Kingdom
to direct their activities. The central office is responsible for marketing support, financial reporting, logistics and
computer website and programming support. The locations of our distribution centers in Europe have enabled us to
market into four additional countries with limited incremental investment.
Suppliers
We purchase the majority of our products and components directly from manufacturers and large wholesale
distributors. For the year ended December 31, 2003, Tech Data Corporation accounted for 14.7% and Ingram Micro Inc.
accounted for 10.4% of our purchases. For the year ended December 31, 2002, Tech Data Corporation accounted for
14.7% of our purchases. For the year ended December 31, 2001, Tech Data Corporation accounted for 15.1% and
Hewlett Packard Company accounted for 10.5% of our purchases. The loss of any of these vendors, or any other key
vendors, could have an adverse effect on us.
Certain private label products are manufactured by third parties to our specifications. Many of these private label
products have been designed or developed by our in-house research and development teams. See "Research and
Development.”
Research and Development
Our research and development teams design and develop products for our private label offerings. The individuals
responsible for research and development have backgrounds in engineering and industrial design.
This in-house capability provides important support to the private label offerings. Products designed include PCs,
servers, furniture, ergonomic monitor support arms, printer and monitor stands, wrist rests and other durable computer
related products, storage racks and shelving systems, various stock and storage carts, work benches, plastic bins and
shop furniture. We own the tooling for many of these products, including plastic bins, computer accessories, furniture
and metal alloy monitor arms. See “Research and Development Costs” in Footnote 1 to the Consolidated Financial
Statements for further information.
Competition and Other Market Factors
Personal Computers
The North American and European computer markets are highly competitive, with many U.S., Asian and
European companies vying for market share. There are few barriers of entry to the PC market, with PCs being sold
through the direct market channel, mass merchants, over the internet and by computer and office supply superstores.
Timely introduction of new products or product features are critical elements to remaining competitive. Other
competitive factors include product performance, quality and reliability, technical support and customer service,
marketing and distribution and price. Some of our competitors have stronger brand-recognition, broader product lines
and greater financial, marketing, manufacturing and technological resources than us. Additionally, our results could also
be adversely affected should we be unable to maintain our technological and marketing arrangements with other
companies, such as Microsoft®, Intel® and Advanced Micro Devices®.
While economic conditions in the United States have recently begun to improve after several years of adverse
conditions, economic conditions in Europe continue to be unsettled, and, on balance, PC sales continue to be slow. This
continued slowness has resulted in lower selling prices among our competitors, creating an extremely competitive
environment that has affected, and may continue to affect, profitability over the short-term. Our long-term view of the
PC market, however, remains optimistic, assuming that the strengthening of U.S. economic conditions continues and