Foot Locker 2013 Annual Report Download - page 26

If we do not successfully manage our inventory levels, our operating results will be adversely affected.
We must maintain sufficient inventory levels to operate our business successfully. However, we also must guard
against accumulating excess inventory. For example, we order the bulk of our athletic footwear four to six
months prior to delivery to our stores. If we fail to anticipate accurately either the market for the merchandise
in our stores or our customers’ purchasing habits, we may be forced to rely on markdowns or promotional sales
to dispose of excess or slow moving inventory, which could have a material adverse effect on our business,
financial condition, and results of operations.
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 obtain exclusive product and the ability
to purchase brand-name merchandise at competitive prices from a limited number of vendors. In addition, our
vendors provide volume discounts, cooperative advertising, and markdown allowances, as well as the ability to
negotiate returns of excess or unneeded merchandise. We cannot be certain that such assistance from our
vendors will continue in the future.
The Company purchased approximately 88 percent of its merchandise in 2013 from its top five vendors and
expects to continue to obtain a significant percentage of its athletic product from these vendors in future
periods. Approximately 68 percent was purchased from one vendor — Nike, Inc. (‘‘Nike’’). Each of our oper-
ating divisions is highly dependent on Nike; they individually purchased 39 to 80 percent of their merchandise
from Nike. 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 be certain that our vendors will continue to allocate sufficient amounts of such merchandise
to us in the future. 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 mate-
rial adverse effect on our business, financial condition, and results of operations. Because of our strong
dependence on Nike, any adverse development in Nike’s reputation, financial condition or results of opera-
tions 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 be certain
that we will be able to acquire merchandise at competitive prices or on competitive terms in the future. These
risks could have a material adverse effect on our business, financial condition, and results of operations.
We depend on mall traffic and our ability to secure suitable store locations.
Our stores are located primarily in enclosed regional and neighborhood malls. Our sales are dependent, in
part, on the volume of mall traffic. Mall traffic may be adversely affected by, among other factors, economic
downturns, the closing of anchor department stores and/or specialty stores, and a decline in the popularity of
mall shopping among our target customers. Further, any terrorist act, natural disaster, or public health or safety
concern that decreases the level of mall traffic, or that affects our ability to open and operate stores in affected
areas, could have a material adverse effect on our business.
To take advantage of customer traffic and the shopping preferences of our customers, we need to maintain or
acquire stores in desirable locations such as in regional and neighborhood malls anchored by major depart-
ment stores. We cannot be certain that desirable mall locations will continue to be available at favorable rates.
Some traditional enclosed malls are experiencing significantly lower levels of customer traffic, driven by the
overall poor economic conditions as well as the closure of certain mall anchor tenants.
Several large landlords dominate the ownership of prime malls, particularly in the United States and Canada,
and because of our dependence upon these landlords for a substantial number of our locations, any significant
erosion of their financial condition or our relationships with these landlords would negatively affect our ability
to obtain and retain store locations. Additionally, further landlord consolidation may negatively affect our ability
to negotiate favorable lease terms.
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