Pottery Barn 2008 Annual Report Download - page 17

Consistent with our published privacy policies, we send our catalogs to addresses from our proprietary customer
list, as well as to addresses from lists of other mail order merchandisers, magazines and companies with whom
we establish a business relationship. In accordance with prevailing industry practice and our privacy policies, 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 our direct-mail 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 O to our Consolidated
Financial Statements.
SUPPLIERS
We purchase our merchandise from numerous foreign and domestic manufacturers and importers, the largest of
which accounted for approximately 4.7% of our purchases during fiscal 2008. Approximately 59% of our
merchandise purchases in fiscal 2008 were foreign-sourced from vendors in 42 countries, predominantly from
Asia, of which approximately 95% were 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 retailers, 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. In addition, the recent decline
in the economic environment has generated increased competition from discount retailers which, in the past, may
not have competed with us or to this degree. 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 the 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, care centers
and distribution centers, 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 all of our marks in the U.S. and we have registered or applied to register our core marks in
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, website designs and store 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,
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Form 10-K