Pottery Barn 2006 Annual Report Download - page 17

We send our catalogs to addresses from our proprietary customer list, as well as to names from lists from other
mail order merchandisers, magazines and companies that we receive in exchange for either payment or new
addresses, consistent with our published privacy policies. In accordance with prevailing industry practice, we
primarily rent our list to select merchandisers. Our customer mailings are continually updated to include new
prospects and to eliminate non-responders.
The direct-to-customer business complements the retail business by building brand awareness and acting as an
effective advertising vehicle. In addition, we believe that the mail order catalogs and the Internet act as a cost-
efficient means of testing market acceptance of new products and new brands.
Detailed financial information about the direct-to-customer segment is found in Note M to our Consolidated
Financial Statements.
SUPPLIERS
We purchase our merchandise from numerous foreign and domestic manufacturers and importers, the largest of
which individually accounted for approximately 3.2% of purchases during fiscal 2006. Approximately 62% of
our merchandise purchases in fiscal 2006 were foreign-sourced from manufacturers in 39 countries, primarily
from Asia and Europe. Approximately 95% of our foreign purchases of merchandise are negotiated and paid for
in U.S. dollars.
COMPETITION AND SEASONALITY
The specialty retail business is highly competitive. Our specialty retail stores, mail order catalogs and
e-commerce websites compete with other retail stores, including large department stores, discount stores, other
specialty retailers offering home centered assortments, other mail order catalogs and other e-commerce websites.
The substantial sales growth in the direct-to-customer industry within the last decade has encouraged the entry of
many new competitors and an increase in competition from established companies. We compete on the basis of
our brand authority, the quality of our merchandise, service to our customers and our proprietary customer list, as
well as location and appearance of our stores. We believe that we compare favorably with many of our current
competitors with respect to some or all of these factors.
Our business is subject to substantial seasonal variations in demand. Historically, a significant portion of our net
revenues and net earnings have been realized during the period from October through December, and levels of
net revenues and net earnings have generally been lower during the period from January through September. We
believe this is the general pattern associated with the direct-to-customer and retail industries. In anticipation of
our peak season, we hire a substantial number of additional temporary employees in our retail stores and
direct-to-customer processing and distribution areas, and incur significant fixed catalog production and mailing
costs.
PATENTS, TRADEMARKS, COPYRIGHTS AND DOMAIN NAMES
We own and/or have applied to register over 50 separate trademarks and service marks. We own and/or have
applied to register our marks in the U.S., Canada and approximately 30 additional jurisdictions. Exclusive rights
to the trademarks and service marks are held by Williams-Sonoma, Inc. and are used by our subsidiaries under
license. These marks include the core brand names or house marks for our subsidiaries, as well as brand names
for selected products and services. The house marks in particular, including “Williams-Sonoma,” the Williams-
Sonoma Grande Cuisine logo, “Pottery Barn,” “pottery barn kids,” “PBteen,” “west elm” and “Williams-Sonoma
Home” are of material importance to us. Trademarks are generally valid as long as they are in use and/or their
registrations are properly maintained, and they have not been found to have become generic. Trademark
registrations can generally be renewed indefinitely so long as the marks are in use. We own numerous copyrights
and trade dress rights for our products, product packaging, catalogs, books, house publications and website
designs, among other things, which are also used by our subsidiaries under license. We hold patents on certain
product functions and product designs. Patents are generally valid for 20 years as long as their registrations are
properly maintained. In addition, we have registered and maintain numerous Internet domain names, including
“williams-sonoma.com,” “potterybarn.com,” “potterybarnkids.com,” “pbteen.com,”
5
Form 10-K