Kohl's 2014 Annual Report Download - page 7

Table of Contents
with our customers. Additionally, failure to accurately predict changing consumer tastes may result in excess inventory, which could result in additional
markdowns and adversely affect our operating results.
•We may be unable to source merchandise in a timely and cost-effective manner.
Approximately 30% of the merchandise we sell is sourced through a third-party purchasing agent. The remaining merchandise is sourced from a
wide variety of domestic and international vendors. Our ability to find qualified vendors and access products in a timely and efficient manner is a
significant challenge which is typically even more difficult for goods sourced outside the United States. Political or financial instability, trade
restrictions, tariffs, currency exchange rates, transport capacity and costs, work stoppages, port strikes, and other factors relating to foreign trade are
beyond our control and could adversely impact our performance.
Increases in the price of merchandise, raw materials, fuel and labor or their reduced availability could increase our cost of goods. The price and
availability of raw materials may fluctuate substantially, depending on a variety of factors, including demand, weather, supply conditions, transportation
costs, energy prices, work stoppages, government regulation and government policy, economic climates, market speculation and other unpredictable
factors. An inability to mitigate these cost increases, unless sufficiently offset with our pricing actions, might cause a decrease in our profitability. Any
related pricing actions might cause a decline in our sales volume. Additionally, a decrease in the availability of raw materials could impair our ability to
meet our production or purchasing requirements in a timely manner. Both the increased cost and lower availability of merchandise, raw materials, fuel
and labor may also have an adverse impact on our cash and working capital needs as well as those of our suppliers.
If any of our significant vendors were to become subject to bankruptcy, receivership or similar proceedings, we may be unable to arrange for
alternate or replacement contracts, transactions or business relationships on terms as favorable as current terms, which could adversely affect our sales
and operating results.
•Failure of our vendors to adhere to our Terms of Engagement and applicable laws.
A substantial portion of our merchandise is received from vendors and factories outside of the United States. We require all of our suppliers to
comply with all applicable local and national laws and regulations and our Terms of Engagement for Kohl's Business Partners. Our Terms of Engagement
include employment and ethical standards as well as environmental, legal, communication, monitoring/compliance and other requirements. From time to
time, suppliers may not be in compliance with these standards or applicable laws. Significant or continuing noncompliance with such standards and laws
by one or more suppliers could have a negative impact on our reputation and our results of operations.
•Ineffective marketing.
We believe that differentiating Kohl's in the marketplace is critical to our success. We design our marketing programs to increase awareness of our
brands and to build personalized connections with our customers. We believe our marketing programs will strengthen customer loyalty, increase the
number and frequency of customers that shop our stores and website and increase our sales. If our marketing programs are not successful, our sales and
profitability could be adversely affected.
•Damage to the reputation of the Kohl's brand or our private and exclusive brands.
We believe the Kohl's brand name and many of our private and exclusive brand names are powerful sales and marketing tools. We devote significant
resources to promoting and protecting them. We develop and promote private and exclusive brands that have generated national recognition. In some
cases, the brands or the marketing of such brands are tied to or affiliated with well-known individuals. Damage to the reputations (whether or not
justified) of the Kohl’s brand, our private and exclusive brand names or any affiliated individuals, could arise from product failures; concerns about
human rights, working conditions and other labor rights and conditions where merchandise is produced; perceptions of our pricing and return policies;
litigation; vendor violations of our Terms of Engagement; or various other forms of adverse publicity, especially in social media outlets. Damage to our
reputation may generate negative customer sentiment, potentially resulting in a reduction in sales, earnings, and shareholder value.
•Product safety concerns.
If our merchandise offerings do not meet applicable safety standards or our customers' expectations regarding safety, we could experience lost sales,
experience increased costs and/or be exposed to legal and reputational risk. Events that give rise to actual, potential or perceived product safety concerns
could expose us to government enforcement action and/or
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