CompUSA 2014 Annual Report Download - page 18

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. 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 2014 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, “hack into” our systems 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 conforms to appropriate Payment Card Industry (“PCI”)
security standards where necessary for its various businesses, any
breach involving the loss of credit card information may lead to PCI related fines in the millions of dollars. In the event of a severe
breach, credit card providers may prevent our 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, the efforts of
“hackers”
and cyber criminals or other developments will prevent the compromise of our customer transaction processing capabilities and
our customers’
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.
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• 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.