Staples 2014 Annual Report Download - page 103

FORWARD-LOOKING STATEMENTS
STAPLES 9
Risks Related to the Business
If we fail to meet the changing needs of our customers
our business and financial performance could be
adversely affected.
We are currently engaged in a multi-year effort to evolve our
business to meet the changing needs of our customers. One
of our top priorities is to significantly expand our product and
service offerings beyond traditional core office supplies, a
category that is declining. Over the past few years we have
had success driving growth in adjacent product categories,
such as facilities and breakroom supplies and service offerings,
such as our copy and print services. We are also enhancing
our ecommerce platforms to provide easy-to-shop websites
and increasing coordination between our online business and
our retail stores. Our success is dependent on providing our
customers the selection of products, as well as services, at
competitive prices that meet customers’ changing needs
and purchasing habits. If we misjudge either the demand for
products and services we sell or our customers’ purchasing
habits and tastes, we may be faced with excess inventories
of some products or missed opportunities for products and
services we do not offer. Failure to provide the products and
services preferred by our customers could have a material
adverse affect on our revenue, results of operations and ability
to attract and retain customers.
We face uncertainties transforming our business, and
our inability to successfully implement our strategies
could adversely affect our business and financial
performance.
As part of our continuing efforts to transform our business, in
2014 we announced a plan to reduce costs by $500 million
on an annualized basis by the end of fiscal year 2015. We also
announced a plan to close at least 225 of our retail stores in
North America by the end of 2015. As a result, we recorded
pre-tax charges of $244.7 million in 2014 related to severance
costs, lease obligations, asset impairments, and other
associated costs, and we expect to incur estimated charges of
$70 - 180 million during fiscal 2015. The success of our plans
is subject to both the risks affecting our business generally and
the inherent difficulty associated with implementing our new
strategies, and is also dependent on the skills, experience,
and efforts of our management and other associates and our
success with third parties. Additional charges may be required
if we are unable to successfully implement our plans or if we
adopt new strategies for the future. To the extent we pursue
acquisitions or other operational and strategic opportunities,
our success will depend on selecting the appropriate targets or
partners, completing integration efforts quickly and effectively
and realizing any expected synergies and cost savings. There
is no assurance that we will be able to successfully implement
these strategic initiatives or that the implementation of changes
will result in the benefits or costs savings at the levels that we
anticipate or at all, which may result in an adverse impact on
our business and financial results.
We have recognized significant goodwill impairment
charges and may be required to recognize additional
goodwill impairment charges in the future.
As a result of challenging industry and operating pressures,
we recorded significant goodwill impairment charges in
2014 related to our Australia and China reporting units. For
additional information related to these charges, see the Critical
Accounting Policies and Significant Estimates section of
Management’s Discussion and Analysis of Financial Condition
and Results of Operations and Note C in the Notes to the
Consolidated Financial Statements. At January 31, 2015, taking
into consideration the charges we recorded in 2014, we had
$2.7 billion of goodwill on our balance sheet. Certain factors,
including consumer and business spending levels, industry
and macroeconomic conditions, the price of our stock and
the future profitability of our businesses might have a negative
impact on the carrying value of our goodwill. The process of
testing goodwill for impairment involves numerous judgments,
assumptions and estimates made by management which
inherently reflect a high degree of uncertainty. If the business
climate deteriorates, if our plans change or if we fail to manage
our restructuring activities successfully, then actual results may
not be consistent with these judgments, assumptions and
estimates, and additional goodwill impairment charges may be
required in future periods. This could have an adverse impact
on our financial position and results of operations.
We operate in a highly competitive market and we may
not be able to continue to compete successfully.
We compete with a variety of online and traditional retailers,
dealers and distributors. As we rapidly expand our assortment
of products and services, we compete directly with an
increasing number of competitors including mass merchants
such as Walmart, Target and Tesco, warehouse clubs such as
Costco, computer and electronics retail stores such as Best
Buy, specialty technology stores such as Apple, copy and
print businesses such as FedEx Office, online retailers such
as Amazon.com, and a wide range of other retailers, including
grocery stores, drug stores and discount retailers. In addition,
our retail stores continue to compete against traditional office
supplies retail stores. Our commercial business competes
against a growing and diverse set of competitors, including
other office supplies distributors, wholesalers, networks
of regional suppliers, managed print service companies,
contract stationers, electronic commerce distributors, regional
and local dealers, direct manufacturers of the products we
distribute, and companies focused on adjacent categories
such as maintenance, repair and operation providers. Many
of our competitors have increased their presence in our core
product areas in recent years, and we expect this trend to
continue going forward. Some of our current and potential
competitors are larger than we are, may have more experience
in selling certain products or delivering services or may have
substantially greater financial resources. Also, many of our
competitors have increased their presence in our core product
areas in recent years by expanding their assortment of office
products and services, opening new stores near our existing
stores, and offering direct delivery of office products. Intense
competitive pressures from one or more of our competitors
could affect prices or demand for our products and services.
If we are unable to appropriately respond to these competitive
pressures, or offer the appropriate mix of products and
services at competitive prices, our financial performance and
market share could be adversely affected.
Global economic conditions could adversely affect our
business and financial performance.
As a world-class provider of products and services that
serve the needs of business customers and consumers in
25 countries, our operating results and performance depend
significantly on worldwide economic conditions and their
impact on business and consumer spending. Increases