Costco 2006 Annual Report Download - page 16

General economic factors, domestically and internationally, may adversely affect our financial
performance.
Higher interest rates, energy costs, inflation, levels of unemployment, consumer debt levels, and other
economic factors could adversely affect demand for our products and services or require a change in
the mix of products we sell that adversely affects profitability. These factors can also increase our cost
of sales and operating, selling, general and administrative expenses, and otherwise adversely affect
our operations and results. General economic conditions can also be affected by the outbreak of war,
acts of terrorism or other significant national or international events.
Our growth strategy includes expanding our business, both in existing markets and by opening
warehouses in new markets.
Our future growth is dependent, in part, on our ability to build or lease new warehouses. We compete
with other retailers and businesses for suitable locations for our warehouses. Local land use, local
zoning issues, environmental regulations and other regulations applicable to the types of warehouses
we desire to construct may impact our ability to find suitable locations, and also influence the cost of
constructing and leasing our warehouses. We also may have difficulty negotiating leases or real estate
purchase agreements on acceptable terms. Failure to manage these and other similar factors
effectively will affect our ability to build or lease new warehouses, which may have a material adverse
affect on our future profitability.
We seek to expand our business in existing markets in order to attain a greater overall market share.
Because our warehouses typically draw members from their local areas, a new warehouse may draw
members away from our nearby existing warehouses and may cause comparable warehouse sales
performance and member traffic at those existing warehouses to decline.
We also intend to open warehouses in new markets. The risks associated with entering a new market
include difficulties in attracting members due to a lack of familiarity with us, our lack of familiarity with
local member preferences and seasonal differences in the market. In addition, entry into new markets
may bring us into competition with new competitors or with existing competitors with a large,
established market presence. While we have a track record of profitable growth, in new markets we
cannot ensure that our new warehouses will be profitably deployed; as a result, our future profitability
may be materially adversely affected.
Any inability to open new warehouses on schedule could hurt our financial performance.
We expect to increase our presence in existing markets and enter new markets. Our opening of new
warehouses, domestically and internationally, will depend on our ability to: identify and secure suitable
locations; negotiate leases or real estate purchase agreements on acceptable terms; attract and train
qualified employees; and manage preopening expenses, including construction costs. We compete
with other retailers and businesses for suitable locations for our warehouses. Our ability to open new
warehouses also is affected by environmental regulations, local zoning issues and other laws related to
land use. Failure to effectively manage these and other similar factors will affect our ability to open
warehouses on schedule, which could adversely affect our financial performance.
We are highly dependent on the financial performance of our United States and Canada
operations.
Our financial performance is highly dependent on our United States and Canada operations, which
comprised 94% of consolidated net sales in both fiscal 2006 and 2005. Within the United States, we
are highly dependent on our California operations, which comprised 31% and 30% of consolidated net
sales in fiscal 2006 and 2005, respectively. Any substantial or sustained decline in these operations
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