DSW 2011 Annual Report Download - page 13

Table of Contents
Our sales and quarterly financial performance may fluctuate for a variety of reasons.
Our business is sensitive to customers’
spending patterns, which in turn are subject to prevailing regional and national economic conditions and the
general level of economic activity. Our comparable sales and quarterly results of operations have fluctuated in the past, and we expect them to
continue to fluctuate in the future. A variety of other factors affect our sales and quarterly financial performance, including: uncertain U.S. economic
conditions and, in particular, the retail sales environment; changes in our merchandising strategy; timing and concentration of new DSW store
openings and related new store and other start-up costs;
levels of new store expenses associated with new DSW stores; changes in our merchandise
mix; changes in and regional variations in demographic and population characteristics;
timing of promotional events; seasonal fluctuations due to
weather conditions; and actions by our competitors. Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be
expected for any other quarter, and comparable sales for any particular future period may increase or decrease. Our future financial performance may
fall below the expectations of securities analysts and investors.
We are reliant on our information systems and the loss or disruption of services could affect our ability to implement our growth strategy and have
a material adverse effect on our business.
Our information systems are an integral part of our growth strategy in efficiently operating our business, in managing the operations of a growing
store base and dsw.com and resolving security risks related to our electronic processing and transmission of confidential customer and associate data.
The requirements to keep our information systems operating at peak performance may be higher than anticipated and could strain our capital resources,
management of any upgrades and our ability to protect ourselves from any future information security breaches. In addition, any significant disruption
of our data center could have a material adverse effect on those operations dependent on those systems, most specifically, store operations, dsw.com,
our distribution and fulfillment centers and our merchandising team. While we maintain business interruption and property insurance, in the event our
data center was to be shut down, our insurance may not be sufficient to cover the impact to the business, or insurance proceeds may not be paid timely.
We sell merchandise through our dsw.com sales channel. We are subject to various risks of operating an online selling channel such as: the
failure of our information technology infrastructure, including any third-
party hardware or software, resulting in downtime or other technical issues;
reliance on third-
party logistics providers to deliver our products to customers; inability to respond to technological changes; violations of state or
federal laws; credit card fraud; or other information security breaches. Failure to mitigate these risks could have a material adverse effect on our
business.
We face security risks related to our electronic processing of sensitive and confidential customer and associate data.
Given the nature of our business, we collect, process and retain sensitive and confidential customer data, including credit card information.
Despite our current security measures, our facilities and systems, and those of our third-
party service providers, may be vulnerable to information
security breaches, acts of vandalism, computer viruses or other similar attacks. An information security breach involving the disclosure of confidential
data could damage our reputation and our customers' willingness to shop in our stores and on dsw.com, and subject us to possible legal liability. In
addition, we may incur material remediation costs as a result of an information security breach, including liability for stolen customer or associate data,
repairing system damage or providing credit monitoring or other benefits to customers or associates affected by the breach. While we have insurance,
in the event we experienced an information security breach, our insurance may not be sufficient to cover the impact to the business, or insurance
proceeds may not be paid timely. Failure to mitigate these risks could have a material adverse effect on our business.
The loss or disruption of our distribution and fulfillment centers could have a material adverse effect on our business and operations.
For our DSW stores and leased businesses, the majority of our inventory is shipped directly from suppliers to our primary distribution center in
Columbus, Ohio, where the inventory is then processed, sorted and shipped to one of our pool locations located throughout the country and then on to
our stores. Through a third party, we also operate a west coast bypass center where shipments bypass our primary distribution center and go directly to
one of our pool locations from the west coast bypass center. For dsw.com, our inventory is shipped directly from our fulfillment center to our
customers. Our operating results depend on the orderly operation of our receiving and distribution process, which in turn depends on third-
party
vendors’
adherence to shipping schedules and our effective management of our distribution facilities. We may not anticipate all the changing demands
that our expanding operations will impose on our receiving and distribution system, and events beyond our control, such as disruptions in operations
due to catastrophic events, labor disagreements or shipping problems, may result in delays in the delivery of merchandise to our stores and customers.
While we maintain business interruption and property insurance, in the event our distribution and fulfillment centers shut down for any reason or if we
were to incur higher costs and longer lead times in connection with a disruption at our distribution and fulfillment centers, our insurance may not be
sufficient to cover the impact to the business, and insurance
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