Lowe's 2013 Annual Report Download - page 18

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Our financial performance could suffer if we fail to properly maintain our critical information systems or if those systems are
seriously disrupted.
An important part of our efforts to achieve efficiencies, cost reductions, and sales and cash flow growth is the maintenance and
ongoing improvements of our existing management information systems that support operations such as inventory
replenishment, merchandise ordering, transportation, receipt processing and product delivery. Our financial performance could
be adversely affected if our management information systems are seriously disrupted or we are unable to maintain, improve,
upgrade, and expand our systems.
As customer-facing technology systems become an increasingly important part of our multi-channel sales and marketing
strategy, the failure of those systems to perform effectively and reliably could keep us from delivering positive customer
experiences.
Access to the internet from computers, tablets, smart phones and other mobile communication devices has empowered our
customers and changed the way they shop and how we interact with them. Our website, Lowes.com, is a sales channel for our
products, and is also a method of making product, project and other relevant information available to them that impacts our in-
store sales. In addition to Lowes.com, we have multiple affiliated websites and mobile apps through which we seek to inspire,
inform, cross-sell, establish online communities among and otherwise interact with our customers. Performance issues with
these customer-facing technology systems, including temporary outages caused by distributed denial of service or other cyber-
attacks, or a complete failure of one or more of them without a disaster recovery plan that can be quickly implemented could
quickly destroy the positive benefits they provide to our home improvement business and negatively affect our customers’
perceptions of Lowe’s as a reliable online vendor and source of information about home improvement products and services.
We are subject to payments-related risks that could increase our operating costs, expose us to fraud, subject us to potential
liability and potentially disrupt our business.
We accept payments using a variety of methods, including credit card, debit card, credit accounts, gift cards, direct debit from a
customer’s bank account, consumer invoicing, and physical bank check. These payment options subject us to compliance
requirements. They also subject us to potential fraud by criminal elements seeking to discover and take advantage of security
vulnerabilities that may exist in some of these payment systems. For certain payment methods, including credit and debit
cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability.
We rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic
checks, gift cards, and promotional financing, and it could disrupt our business if these companies become unwilling or unable
to provide these services to us. We are also subject to payment card association operating rules, including data security rules,
certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it
difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems
are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and
lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate
other types of online payments, and our business and operating results could be adversely affected. We also offer co-branded
credit card programs, which could adversely affect our operating results if terminated.
Failure of a key vendor or service provider that we cannot quickly replace could disrupt our operations and negatively impact
our business.
No single vendor of the products we sell accounts for more than 6% of our total purchases, but we rely upon a number of
vendors as the sole or primary source of some of the products we sell. We also rely upon many independent service providers
for technology solutions and other services that are important to many aspects of our business. If these vendors or service
providers fail or are unable to perform as expected and we are unable to replace them quickly, our business could be adversely
affected, at least temporarily, until we are able to do so and potentially, in some cases, permanently.
Failure to effectively manage our third party installers could result in increased operational and legal risks.
We use third party installers to provide installation services to our customers, and as the general contractor, are subject to
regulatory requirements and risks, applicable to general contractors, including the management of the permitting, licensing and
quality of our third party installers. Our failure to effectively manage such requirements and risks could result in lost sales,
fines and lawsuits, as well as damage to our reputation, which could negatively affect our business.
Failure to achieve and maintain a high level of product and service quality could damage our image with customers and
negatively impact our sales, profitability, cash flows and financial condition.
Product and service quality issues could result in a negative impact on customer confidence in Lowe’s and the Company’s
brand image. As a result, Lowe’s reputation as a retailer of high quality products and services, including both national and
Lowe’s private brands, could suffer and impact customer loyalty. Additionally, a decline in product and service quality could
result in product recalls, product liability and warranty claims.