Circuit City 2011 Annual Report Download - page 14

Similar to other companies in the technology products industry, we advertise manufacturers’ mail-in rebates on many products we sell and,
in some cases, offer our own rebates. These rebates are processed through third party vendors and in house. If these rebates are not
processed in a timely and satisfactory manner by either third party vendors or our in house operations, our reputation in the marketplace
could be negatively impacted.
The computer and consumer electronics industry is highly price competitive and gross profit margins are narrow and variable. The
Company’s ability to further reduce prices in reaction to competitive pressure is limited. Timely introduction of new products or product
features are critical elements to remaining competitive. Additionally, gross margins and operating margins are affected by changes in
factors such as vendor pricing, vendor rebate and or price protection programs, product return rights, and product mix. In 2011 pricing
pressure continued to be prevalent in the markets we serve and we expect this to continue. We may not be able to mitigate these pricing
pressures and resultant declines in sales and gross profit margin with cost reductions in other areas or expansion into new product lines. If
we are unable to proportionately mitigate these conditions our operating results and financial condition may suffer.
In processing our sales orders we often collect personal information and credit card information from our customers. The Company has
privacy and data security policies in place which are designed to prevent security breaches, however, if a third party or a rogue employee or
employees are able to bypass our network security or otherwise compromise our customers’ personal information or credit card
information, we could be subject to liability. This liability may include claims for identity theft, unauthorized purchases and claims alleging
misrepresentation of our privacy and data security practices or other related claims. While the Company believes it is in compliance with
appropriate Payment Card Industry (“PCI”) security standards for its various businesses, any breach involving the loss of credit card
information may lead to PCI related fines of up to $500,000. In the event of a severe breach credit card providers may prevent the accepting
of credit cards. Any such liability related to the aforementioned risks could lead to reduced profitability and damage our brand(s) and/or
reputation.
The use of individually identifiable consumer data is regulated at the state, federal and international levels and we incur costs associated
with information security – such as increased investment in technology and the costs of compliance with consumer protection
laws. Additionally, our internet operations and website sales depends upon the secure transmission of confidential information over public
networks, including the use of cashless payments. While we have taken significant steps to protect customer and confidential information,
there can be no assurance that advances in computer capabilities, new discoveries in the field of cryptography or other developments will
prevent the compromise of our customer transaction processing capabilities and personal data. If any such compromise of our security
were to occur, it could have a material adverse effect on our reputation, operating results and financial condition and could subject us to
litigation.
Failure to adequately control fraudulent credit card transactions could increase our expenses. Increased sales to individual consumers,
which are more likely to be paid for using a credit card, increases our exposure to fraud. We employ technology solutions to help us detect
the fraudulent use of credit card information. However, if we are unable to detect or control credit card fraud, we may suffer losses as a
result of orders placed with fraudulent credit card data, which could adversely affect our business.
Our business depends largely on the efforts and abilities of certain key senior management. The loss of the services of one or more of such
key personnel could have a material adverse affect on our business and financial results. We do not currently maintain key man insurance
policies on any of our executive officers.
Table of Contents
•
The failure to timely and satisfactorily process manufacturers
’
and our own rebate programs could negatively impact our customer
satisfaction levels
.
• We may be unable to reduce prices in reaction to competitive pressures, or implement cost reductions or new product line expansion to
address gross profit and operating margin pressures; failure to mitigate these pressures could adversely affect our operating results and
financial condition
.
• We would be exposed to liability, including substantial fines and penalties and, in extreme cases, loss of our ability to accept credit cards,
in the event our privacy and data security policies and procedures are inadequate to prevent security breaches of our consumer personal
information and credit card information records.
•
Failure to protect the integrity, security and use of our customers
’
information could expose us to litigation and materially damage our
standing with our customers
•
Sales to individual customers expose us to credit card fraud, which impacts our operations. If we fail to adequately protect ourselves from
credit card fraud, our operations could be adversely impacted.
• Our business is dependent on certain key personnel.
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