Home Shopping Network 2012 Annual Report Download - page 16

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We depend on relationships with vendors, manufacturers and other third parties; any adverse changes in these relationships could
result in a failure to meet customer expectations which could result in lost sales.
We purchase merchandise from a wide variety of third party vendors, manufacturers and other sources pursuant to short- and long-term
contracts and purchase orders. Our ability to identify and establish relationships with these parties, as well as access quality merchandise in a
timely and efficient manner on acceptable terms and at acceptable costs, can be challenging. In particular, we purchase a significant amount of
merchandise from vendors and manufacturers abroad and have experienced (and expect to continue to experience) increased costs for goods
sourced in these markets. We depend on the ability of vendors and manufacturers in the U.S. and abroad to produce and deliver goods that meet
applicable quality standards, which is impacted by a number of factors not within the control of these parties, such as political or financial
instability, trade restrictions, tariffs, currency exchange rates and transport capacity and costs, among others. In particular, Cornerstone is
dependent, in significant part, upon independent, third party manufacturers to produce private label merchandise.
Our failure to identify new vendors and manufacturers, maintain relationships with a significant number of existing vendors and
manufacturers and/or access quality merchandise in a timely and efficient manner could cause us to miss customer delivery dates or delay
scheduled promotions, which would result in the failure to meet customer expectations and could cause customers to cancel orders or cause us to
be unable to source merchandise in sufficient quantities, which could result in lost sales.
The unanticipated loss of certain larger vendors could negatively impact our sales and profitability on a short term basis.
It is possible that one or more of our larger vendors could experience financial difficulties, including bankruptcy, or otherwise could elect
to cease doing business with us. While we have periodically experienced the loss of a major vendor, if a number of our current larger vendors
ceased doing business with us, this could materially and adversely impact our sales and profitability on a short term basis.
We may not be able to accurately predict and/or respond in a timely manner to evolving customer preferences and trends and industry
standards, which could result in excess inventory, related markdowns and lost sales.
Our success depends, in significant part, on our ability to accurately predict, and respond in a timely manner to, changes in customer
preferences and fashion, lifestyle and other trends and industry standards. While product mix and price points are continuously monitored and
adjusted in an attempt to satisfy consumer demand and respond to changing economic and business conditions, we may not be successful in
these efforts, and any sustained failure could result in excess inventory and related markdowns.
In addition, the internet industry is characterized by evolving industry standards, frequent new service and product introductions and
enhancements, as well as changing customer demands. If we are not able to adapt quickly enough and/or in a cost-effective manner to these
changes it could result in lost sales.
We are currently the subject of a consent order issued by the FTC and violation of this consent order could result in significant civil
penalties and/or an injunction enjoining HSN from engaging in prohibited activities, among other penalties or remedies.
In October 1996, HSN became subject to a consent order issued by the FTC which terminates on the later of April 15, 2019, or 20 years
from the most recent date that the United States or the FTC files a complaint in federal court alleging any violation thereunder. Pursuant to this
consent order, HSNi (including its subsidiaries and affiliates) is prohibited from making claims for specified categories of products, including
claims that a given product can cure, treat or prevent any disease or have an effect on the structure or function of the human body, unless it has
competent and reliable scientific evidence to substantiate such claims. Violation of this consent order may result in the imposition of significant
civil penalties for non-
compliance and related redress to consumers and/or the issuance of an injunction enjoining us from engaging in prohibited
activities. The FTC periodically investigates our business and operations on an ongoing basis for purposes of determining its compliance with
the consent order.
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