Express 2010 Annual Report Download - page 36

such qualified individuals could require us to pay higher wages to attract a sufficient number of employees.
Additionally, our labor costs are subject to many external factors, including unemployment levels, prevailing
wage rates, minimum wage laws, potential collective bargaining arrangements, health insurance costs and other
insurance costs, and changes in employment and labor legislation or other workplace regulation (including
changes in entitlement programs such as health insurance and paid leave programs). Any increase in labor costs
may adversely impact our profitability, or, if we fail to pay such higher wages, we could suffer increased
employee turnover.
We are also dependent upon temporary personnel to adequately staff our stores and distribution facilities, with
heightened dependence during busy periods such as the holiday season and when multiple new stores are
opening. There can be no assurance that we will receive adequate assistance from our temporary personnel, or
that there will be sufficient sources of suitable temporary personnel to meet our demand. Any such failure to
meet our staffing needs or any material increases in employee turnover rates could have a material adverse effect
on our business or results of operations.
We work with Limited Brands to provide us with certain key services for our business. If Limited Brands fails
to perform its obligations to us or if we do not find appropriate replacement services, we may be unable to
provide these services or implement substitute arrangements on a timely and cost-effective basis on terms
favorable to us.
Limited Brands, our former parent and a current equity holder, provides certain services to us under various
agreements and arrangements. Mast, an affiliate of Limited Brands, currently provides us with certain support
services relating to our product production and sourcing. Under a logistics services agreement with Limited
Brands that was entered into on October 5, 2009 and took effect in February 2010, Mast also provides certain
inbound and outbound transportation and delivery services, distribution services, customs and brokerage
services, and rental of warehouse/distribution space. The logistics services agreement ends on April 30, 2016.
The agreement will continue thereafter unless it is terminated by either party on no less than 24 months’ prior
notice. Notwithstanding the foregoing, we have the right to terminate the agreement on 24 months’ prior notice.
In no event may the termination of the agreement occur between October 1 of any calendar year and the last day
of February of the next calendar year. If Limited Brands or Mast fails to perform its obligations under either the
logistics services agreement or other agreements, we may be unable to obtain substitute arrangements in a timely
and cost-effective manner. In addition, we may be unable to obtain replacement services for these arrangements,
or may be required to incur additional costs and may experience delays or business interruptions as a result of our
transition to other service providers, which could have a material adverse effect on our business. See Note 6 to
our Consolidated Financial Statements for further discussion of these related party transactions.
We rely significantly on information systems and any failure, inadequacy, interruption, or security failure of
those systems could harm our ability to effectively operate our business, harm our net sales, increase our
expenses, and harm our reputation.
Our ability to effectively manage and maintain our inventory, and to ship products to our stores and our
customers on a timely basis, depends significantly on our information systems. To manage the growth of our
operations, personnel, and real estate portfolio, we will need to continue to improve and expand our operational
and financial systems, real estate management systems, transaction processing, internal controls, and business
processes; in doing so, we could encounter implementation issues and incur substantial additional expenses. The
failure of our information systems to operate effectively, problems with transitioning to upgraded or replacement
systems or expanding them into new stores, or a breach in security of these systems could adversely impact the
promptness and accuracy of our merchandise distribution, transaction processing, financial accounting and
reporting, the efficiency of our operations, and our ability to properly forecast earnings and cash requirements.
We could be required to make significant additional expenditures to remediate any such failure, problem, or
breach. Such events may have a material adverse effect on us.
20