Banana Republic 2014 Annual Report Download - page 20

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Our franchise business is subject to certain risks not directly within our control that could impair the
value of our brands.
We enter into franchise agreements with unaffiliated franchisees to operate stores and, in limited circumstances,
websites in many countries around the world. Under these agreements, third parties operate, or will operate,
stores and websites that sell apparel and related products under our brand names. The effect of these
arrangements on our business and results of operations is uncertain and will depend upon various factors,
including the demand for our products in new markets internationally and our ability to successfully identify
appropriate third parties to act as franchisees, distributors, or in a similar capacity. In addition, certain aspects of
these arrangements are not directly within our control, such as franchisee financial stability and the ability of these
third parties to meet their projections regarding store locations, store openings, and sales. Other risks that may
affect these third parties include general economic conditions in specific countries or markets, foreign exchange
rates, changes in diplomatic and trade relationships, restrictions on the transfer of funds, and political instability.
Moreover, while the agreements we have entered into and plan to enter into in the future provide us with certain
termination rights, the value of our brands could be impaired to the extent that these third parties do not operate
their stores in a manner consistent with our requirements regarding our brand identities and customer experience
standards. Failure to protect the value of our brands, or any other harmful acts or omissions by a franchisee,
could have an adverse effect on our results of operations and our reputation.
The market for prime real estate is competitive.
Our ability to effectively obtain real estate - to open new stores, distribution centers, and corporate offices
nationally and internationally - depends on the availability of real estate that meets our criteria for traffic, square
footage, co-tenancies, lease economics, demographics, and other factors. We also must be able to effectively
renew our existing store leases. In addition, from time to time, we may seek to downsize, consolidate, reposition,
relocate, or close some of our real estate locations, which in most cases requires a modification of an existing
store lease. Failure to secure adequate new locations or successfully modify existing locations, or failure to
effectively manage the profitability of our existing fleet of stores, could have a material adverse effect on our
results of operations.
Additionally, the economic environment may at times make it difficult to determine the fair market rent of real
estate properties within the United States and internationally. This could impact the quality of our decisions to
exercise lease options at previously negotiated rents and the quality of our decisions to renew expiring leases at
negotiated rents. Any adverse effect on the quality of these decisions could impact our ability to retain real estate
locations adequate to meet our targets or efficiently manage the profitability of our existing fleet of stores and
could have a material adverse effect on our results of operations.
We are subject to data security risks, which could have an adverse effect on our results of operations and
consumer confidence in our security measures.
As part of our normal operations, we receive and maintain confidential, proprietary, and personally identifiable
information, including credit card information, about our customers, our employees, job applicants, and other third
parties. Our business employs systems and websites that allow for the secure storage and transmission of this
information. However, despite our safeguards and security processes and protections, security breaches could
expose us to a risk of loss or misuse of this information, litigation, and potential liability. The retail industry, in
particular, has been the target of many recent cyber-attacks. We may not have the resources to anticipate or
prevent rapidly evolving types of cyber-attacks. Attacks may be targeted at us, our customers, or others who have
entrusted us with information. In addition, even if we take appropriate measures to safeguard our information
security and privacy environment from security breaches, we could still expose our customers and our business to
risk. Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional
personnel and protection technologies, train employees, and engage third-party experts and consultants.
Advances in computer capabilities, new technological discoveries, or other developments may result in the
technology used by us to protect transaction or other data being breached or compromised. Measures we
implement to protect against cyber-attacks may also have the potential to impact our customers’ shopping
experience or decrease activity on our websites by making them more difficult to use. Data and security breaches
can also occur as a result of non-technical issues, including intentional or inadvertent breach by our employees or