Famous Footwear 2011 Annual Report Download - page 16

14 2011 BROWN SHOE COMPANY, INC. FORM 10-K
ITEM 1A RISK FACTORS
Economic conditions have adversely impacted, and may continue to adversely impact, consumer demand for our products.
Over the last few years, worldwide economic conditions deteriorated in many countries and regions, including the United
States. Despite some positive trends throughout 2011, business conditions may remain uncertain for the foreseeable
future due in part to cautious consumer spending. Consumer confi dence and spending are strongly infl uenced by
general economic conditions, including U.S. fi scal policy, interest rates, infl ation, consumer debt levels, the availability
of consumer credit, the liquidity of consumers’ assets, health care costs, currency exchange rates, taxation, gasoline
prices, real estate values, foreclosure rates, unemployment trends and the economic consequences of military action or
terrorist activities. Negative economic conditions generally decrease disposable income and, consequently, consumer
purchases of discretionary items like our products. Negative trends in economic conditions also drive up the cost of our
products, which may require us to increase the price of our products. These increases in our product costs, and possibly
prices, may not be o set by comparable increases in consumer disposable income. As a result, our customers may
choose to purchase fewer of our products or purchase the lower-priced products of our competitors, and our business,
results of operations, fi nancial condition and cash fl ows could be adversely a ected.
If we are unable to anticipate and respond to consumer preferences and fashion trends and successfully apply new
technology, we may not be able to maintain or increase our net sales and earnings.
The footwear industry is subject to rapidly changing consumer demands and fashion trends. Our products must appeal
to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change.
Accordingly, the success of both our wholesale and retail operations depends largely on our ability to anticipate,
understand and react to changing consumer demands and preferences. Our performance athletic and outdoor footwear
brands are subject to additional challenges related to rapid changes in footwear technology, the availability of high
quality endorsers and the possibility of negative expert opinions on the unique technologies and designs of our
performance footwear brands. If we fail to successfully anticipate and respond to changes in consumer demand and
fashion trends, develop new products and designs and implement e ective, responsive merchandising and marketing
strategies and programs, we could experience lower sales, excess inventories and lower gross margins, any of which
could have an adverse e ect on our results of operations and fi nancial condition.
We operate in a highly competitive industry.
Competition is intense in the footwear industry. Certain of our competitors are larger and have greater fi nancial, marketing
and technological resources than we do; others are able to o er footwear on a lateral basis alongside their apparel products;
and others have successfully branded their trademarks as lifestyle brands, resulting in greater competitive advantages to
those competitors. Low barriers to entry into this industry further intensify competition by allowing new companies to
easily enter the markets in which we compete. In addition, retailers aggressively compete on the basis of price, which puts
competitive pressure on us to keep our prices low. Some of our suppliers further compound these competitive pressures by
allowing consumers to purchase their products directly through supplier maintained Internet sites and retail stores.
We believe that our ability to compete successfully in the footwear industry depends on a number of factors, including
style, price, performance, quality, location and service as well as the strength of our brand-names. We remain competitive
by increasing awareness of our brands, improving the e ciency of our supply chain and enhancing the style, comfort,
fashion and perceived value of our products. However, our competitors may implement more e ective marketing
campaigns, adopt more aggressive pricing policies, make more attractive o ers to potential employees, distribution
partners and manufacturers, or respond more quickly to changes in consumer preferences than us. As a result, we may
not be able to compete successfully in the future, and increased competition may result in price reductions, reduced
gross margins, loss of market share and an inability to generate cash fl ows that are su cient to maintain or expand the
development and marketing of our products, which could adversely impact our fi nancial results.
Our operating results depend on preparing accurate sales forecasts and properly managing our inventory levels.
Using sales forecasts, we place orders with manufacturers for some of our products prior to the time we receive all of our
customers’ orders to minimize purchasing costs, the time necessary to fi ll customer orders and the risk of non-delivery.
We also maintain an inventory of certain products that we anticipate will be in greater demand. However, the global
economic slowdown and rapidly changing consumer preferences can make it di cult for us and our customers to
accurately forecast product trends in order to match production with demand. If we fail to accurately assess consumer
fashion tastes and the impact of economic factors on consumer spending or to e ectively di erentiate our retail and
wholesale o erings, our inventory levels may exceed customer demand, resulting in inventory write-downs, higher carrying
costs, lower gross margins or the sale of excess inventory at discounted prices, which could signifi cantly impair our fi nancial
results. Conversely, if we underestimate consumer demand for our products or if our manufacturers fail to supply the
quality products that we require in a timely manner, we may experience inventory shortages. Inventory shortages may
delay shipments to customers (and possibly require us to o er discounts or costly expedited shipping), negatively impact
retailer and distributor relationships, adversely impact our sales results and diminish brand awareness and loyalty.