Sally Beauty Supply 2013 Annual Report Download - page 57

candidates or successfully complete desirable acquisitions,’’ ‘‘If we acquire any businesses in the
future, they could prove difficult to integrate, disrupt our business or have an adverse effect on our
results of operations’’ and ‘‘Our ability to conduct business in international marketplaces may be
affected by legal, regulatory and economic risks.’’
•Continuing consolidation. There is continuing consolidation among professional beauty product
distributors and professional beauty product manufacturers. We plan to continue to examine ways
in which we can benefit from this trend, including the evaluation of opportunities to shift business
from competitive distributors to the BSG network as well as seeking opportunistic, value-added
acquisitions which complement our long-term growth strategy. We believe that suppliers are
increasingly likely to focus on larger distributors and retailers with a broader scale and retail
footprint. We also believe that we are well positioned to capitalize on this trend as well as
participate in the ongoing consolidation at the distributor/retail level. However, changes often occur
in our relationships with suppliers that may materially affect the net sales and operating earnings of
our business segments. Consolidation among suppliers could exacerbate the effects of these
relationship changes and could increase pricing pressures. For example, L’Oreal has acquired
distributors that compete with BSG in the Midwest, Southeast and West Coast regions of the U.S.
and, as a result, L’Oreal directly competes with BSG in certain geographic areas. If L’Oreal or any
of our other suppliers acquired other distributors or suppliers that conduct significant business with
BSG, we could lose related revenue. There can be no assurance that BSG will not lose further
revenue over time (including within its franchise-based business) due to potential losses of
additional products as well as from the increased competition from distribution networks affiliated
with any of our suppliers. Please see ‘‘Risk Factors—The beauty products distribution industry is
highly competitive and is consolidating’’ and ‘‘We depend upon manufacturers who may be unable
to provide products of adequate quality or who may be unwilling to continue to supply products to
us.’’
•Relationships with suppliers. Sally Beauty Supply and BSG, and their respective suppliers are
dependent on each other for the distribution of beauty products. We do not manufacture the brand
name or exclusive-label products we sell. We purchase our products from a limited number of
manufacturers. As is typical in distribution businesses (particularly in our industry), these
relationships are subject to change from time to time (including the expansion or loss of distribution
rights, including exclusive rights, in various geographies and the addition or loss of product lines).
Since we purchase products from many manufacturers on an at-will basis, under contracts which can
generally be terminated without cause upon 90 days’ notice or less or which expire without express
rights of renewal, such manufacturers could discontinue sales to us at any time or upon the
expiration of the distribution period. Some of our contracts with manufacturers may be terminated
by such manufacturers if we fail to meet specified minimum purchase requirements. In such cases,
we do not have contractual assurances of continued supply, pricing or access to new products and
vendors may change the terms upon which they sell. Infrequently, a supplier will seek to terminate a
distribution relationship through legal action. Changes in our relationships with suppliers occur
often and could positively or negatively impact our net sales and operating profits. We expect to
continue to expand our product line offerings and to gain additional distribution rights over time
through either further negotiation with suppliers or by acquisitions of existing distributors.
Although we focus on developing new revenue and cost management initiatives to mitigate the
negative effects resulting from unfavorable changes in our supplier relationships, there can be no
assurance that our efforts will continue to completely offset the loss of these or other distribution
rights. Please see ‘‘Risk Factors—We depend upon manufacturers who may be unable to provide
products of adequate quality or who may be unwilling to continue to supply products to us.’’
•High level of competition. Sally Beauty Supply competes with other domestic and international
beauty product wholesale and retail outlets, including local and regional open-line beauty supply
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