Petsmart 2000 Annual Report Download - page 12

cooperative advertising and market development funds. A reduction or discontinuance of these incentives could
have a material adverse effect on the Company.
The Company purchases significant amounts of pet supplies from a number of vendors with limited supply
capabilities. There can be no assurance that PETsMART’ s current pet supply vendors will be able to
accommodate the Company’ s anticipated growth. PETsMART is continually seeking to expand its base of pet
supply vendors and to identify new pet supply products. Additionally, the Company purchases significant
amounts of pet supplies from vendors outside of the United States. There can be no assurance the Company’ s
overseas vendors will be able to satisfy PETsMART’ s requirements, including timeliness of delivery, acceptable
product quality, packaging and labeling requirements, and other requirements of the C ompany. An inability of
PETsMART’ s existing vendors to provide products in a timely or cost-effective manner could have a material
adverse effect on the Company. While the Company believes its vendor relationships are satisfactory, any
vendor could discontinue selling to the Company at any time.
Electronic Commerce Initiatives. PETsMART.com competes against other electronic retailers with
significant capital resources and marketing capabilities who have established web sites and product offerings. The
Company believes that its existing fulfillment and order processing capabilities, along with its advertising,
merchandising, product procurement, and pet- related content abilities provide PETsMART.com with a
competitive advantage over other electronic commerce retailers. Direct recently expanded its Brockport, New
York distribution facility to better service the anticipated inventory and fulfillment needs (See “Distribution”
section below). There can be no assurance PETsMART.com, statelinetack.com and rcsteele.com will be
successful and profitable and that the C ompany will realize the anticipated return on their investment in these e-
commerce endeavors.
Although electronic commerce is expanding in certain retail categories, there can be no assurance that the
Company’ s class of goods can be effectively and efficiently marketed, sold and delivered through electronic
commerce. PETsMART may also be required to seek additional capital resources to fund PETsMART.com and
there can be no assurance that the Company would be successful in obtaining such financing on acceptable
terms. The “Internet Tax Freedom Act” currently prohibits the collection by state and local governments of sales
and use taxes on sales made through electronic commerce. There can be no assurance
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that the imposition of sales and use taxes upon electronic commerce sales will not have a material adverse impact
upon the Company’ s investment in PETsMART.com.
There can be no assurance that PETsMART.com will be able to complete an initial public offering of its
common stock. If an offering cannot be completed, the Company may need to provide additional capital to fund
operations.
Distribution. The Company recently completed its warehouse and distribution strategy to determine the
optimum network configuration. The primary change to the network results in the development of five regional
forward distribution centers, which allows for a more efficient use of store inventory, store labor, reduced
transportation costs, improved in-stock position and distribution center productivity and vendor support. The
Company began the implementation of this strategy during fiscal 1999 with the new distribution center in Ennis,
Texas. Four additional forward distribution centers are planned for completion during fiscal years 2000 and
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