Foot Locker 2014 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 most 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 suppliers 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 suppliers. In addition, our
suppliers 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 terms with our
suppliers will continue in the future.
The Company purchased approximately 89 percent of its merchandise in 2014 from its top five suppliers and
expects to continue to obtain a significant percentage of its athletic product from these suppliers in future
periods. Approximately 73 percent was purchased from one supplier — Nike, Inc. (‘‘Nike’’). Each of our
operating divisions is highly dependent on Nike; they individually purchased 47 to 84 percent of their
merchandise from Nike. Merchandise that is high profile and in high demand is allocated by our suppliers
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 suppliers 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 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 reputation, financial condition
or 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 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 department
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 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, Canada, and
Australia, 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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