Foot Locker 2005 Annual Report Download - page 19

The effects of natural disasters, terrorism, acts of war and retail industry conditions may adversely affect
our business.
Natural disasters, including hurricanes, floods and tornados may affect store and distribution center operations. In
addition, acts of terrorism, acts of war and military action both in the United States and abroad can have a significant
effect on economic conditions and may negatively affect our ability to purchase merchandise from vendors for sale to
our customers. Any significant declines in general economic conditions, public safety concerns or uncertainties regarding
future economic prospects that affect customer spending habits could have a material adverse effect on customer
purchases of our products.
A change in the relationship with any of our key vendors or the unavailability of our key products at
competitive prices could affect our financial health.
Our business is dependent to a significant degree upon our ability to purchase brand-name merchandise at competitive
prices, including the receipt of volume discounts and cooperative advertising and other allowances from our vendors. The
Company purchased approximately 75 percent of its merchandise in 2005 from its top five vendors, and expects to continue
to obtain a significant percentage of its athletic product from these vendors in future periods. Of that amount approximately
49 percent was purchased from one vendor — Nike, Inc. (“Nike”). We have no long-term supply contracts with any of our
vendors. Our inability to obtain merchandise in a timely manner from major suppliers (particularly Nike) as a result of business
decisions by our suppliers or any disruption in the supply chain could have a material adverse effect on our business, financial
condition and results of operations. Because of our strong dependence on Nike, any adverse development in Nike’s financial
condition and results of operations or the inability of Nike to develop and manufacture products that appeal to our target
customers could also have an adverse effect on our business, financial condition and results of operations. We cannot assure
you that we will be able to acquire merchandise at competitive prices or on competitive terms in the future.
Merchandise that is high profile and in high demand is allocated by our vendors based upon their internal criteria.
Although we have generally been able to purchase sufficient quantities of this merchandise in the past, we cannot assure
you that our vendors will continue to allocate sufficient amounts of such merchandise in the future. In addition, our
vendors provide support to us through cooperative advertising allowances and promotional events. We cannot assure you
that such assistance from our vendors will continue in the future. These risks could have a material adverse effect on our
business, financial conditions and results of operations.
We may experience fluctuations in and cyclicality of our comparable store sales results.
Our comparable store sales have fluctuated significantly in the past, on both an annual and a quarterly basis, and
we expect them to continue to fluctuate in the future. A variety of factors affect our comparable store sales results,
including, among others, fashion trends, the highly competitive retail store sales environment, economic conditions,
timing of promotional events, changes in our merchandise mix, calendar shifts of holiday periods and weather conditions.
Many of our products, particularly high-end athletic footwear and licensed apparel, represent discretionary
purchases. Accordingly, customer demand for these products could decline in a recession or if our customers develop other
priorities for their discretionary spending. These risks could have a material adverse effect on our business, financial
condition and results of operations.
Our operations may be adversely affected by economic or political conditions in other countries.
Approximately 25 percent of our sales and a significant portion of our operating profits for 2005 were attributable to
our sales in Europe, Canada, New Zealand and Australia. As a result, our business is subject to the risks generally associated
with doing business outside of the United States, such as foreign governmental regulations, foreign customer preferences,
political unrest, disruptions or delays in shipments and changes in economic conditions in countries in which we operate.
Although we enter into forward foreign exchange contracts and option contracts to reduce the effect of foreign currency
exchange rate fluctuations, our operations may be adversely affected by significant changes in the value of the U.S. dollar
as it relates to certain foreign currencies.
In addition, because we and our suppliers have a substantial amount of our products manufactured in foreign
countries, our ability to obtain sufficient quantities of merchandise on favorable terms may be affected by governmental
regulations, trade restrictions and economic, labor and other conditions in the countries from which our suppliers obtain
their product.
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