Office Depot 2008 Annual Report Download - page 13

12
Execution of Expansion Plans: We plan to open approximately 15 stores in the North American Retail Division
during 2009. Circumstances outside of our control could negatively impact these anticipated store openings. We
cannot determine with certainty whether our new store openings, including some newly sized or formatted stores or
retail concepts, will be successful. The failure to expand by successfully opening new stores as planned, or the
failure of a significant number of these stores to perform as planned, could have a material adverse effect on our
business, financial condition, results of operations and cash flows.
Costs of Remodeling and Re-merchandising Stores: Remodeling and re-merchandising our stores is a necessary
aspect of maintaining a fresh and appealing image to our customers. The expenses associated with such activities
could have a significant negative impact on our future earnings. Business lost during remodeling periods, because of
customer inconvenience, may not be recovered or successfully redirected to other stores in the area. Our growth,
through both store openings and possible acquisitions, may continue to require the expansion and upgrading of our
information, operational and financial systems, as well as necessitate the hiring of new store associates at all levels.
If we are unsuccessful in achieving an acceptable return on this design, unsuccessful at hiring the right associates, or
unsuccessful at implementing appropriate systems, such failure could have a material adverse effect on our business,
financial condition, results of operations and cash flows.
International Activity: We may enter additional international markets as attractive opportunities arise. Such entries
could take the form of start-up ventures, acquisitions of stock or assets or joint ventures or licensing arrangements.
Internationally, we face such risks as foreign currency fluctuations, unstable political and economic conditions, and,
because some of our foreign operations are not wholly owned, the potential for compromised operating control in
certain countries. In addition, the business cultures in certain areas of the world are different than those that prevail
in the United States, and we may be at a competitive disadvantage against other companies that do not have to
comply with standards of financial controls, Foreign Corrupt Practices Act requirements, or business integrity that
we are committed to maintaining as a U.S. publicly traded company. Our results may continue to be affected by all
of these factors. All of these risks could have a material adverse effect on our business, financial condition, results of
operations and cash flows.
Product Availability; Potential Cost Increases: In addition to selling our private brand merchandise, we are a
reseller of other manufacturers’ branded items and are thereby dependent on the availability and pricing of key
products, including ink, toner, paper and technology products, to name a few. As a reseller, we cannot control the
supply, design, function or cost of many of the products we offer for sale. Disruptions in the availability of raw
materials used in production of these products may adversely affect our sales and result in customer dissatisfaction.
Further, we cannot control the cost of manufacturers’ products and cost increases must either be passed along to our
customers or result in an erosion of our earnings. Failure to identify desirable products and make them available to
our customers when desired and at attractive prices could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Global Sourcing of Products/Private Brand: In recent years, we have substantially increased the number and
types of products that we sell under our private brands. We currently offer general office supplies, computer
supplies, business machines and related supplies, and office furniture under various labels, including Office Depot®,
Viking Office Products®, Niceday™, Foray®, Ativa®, Break Escapes™, Worklife™ and Christopher LowellTM.
Sources of supply may prove to be unreliable, or the quality of the globally sourced products may vary from our
expectations. We have recently opened our own product sourcing office in China and are reducing our reliance on
the use of third-party trading companies. While this may improve our cost structure, it also makes our company
more accountable for relationships with the Asian factories and other sources of private branded product and
increases our risks associated with doing business in that region of the world. Economic and civil unrest in areas of
the world where we source such products, as well as shipping and dockage issues could adversely impact the
availability or cost of such products, or both. Moreover, as we seek indemnities from the manufacturers of these
products, the uncertainty of realization of any such indemnity and the lack of understanding of U.S. product liability
laws in certain parts of Asia make it more likely that we may have to respond to claims or complaints from our
customers as if we were the manufacturer of the products. Most of our imported goods to the United States arrive
from Asia, and the ports through which these goods are imported are located primarily on the West Coast.
Therefore, we are subject to potential disruption of our supplies of goods for resale due to labor unrest, security
issues or natural disasters affecting any or all of these ports. Finally, as a significant importer of manufactured goods
from foreign countries, we are vulnerable to security concerns, labor unrest and other factors that may affect the
availability and reliability of ports of entry for the products that we source. Any of these circumstances could have a
material adverse effect on our business, financial condition, results of operations and cash flows.