Pottery Barn 2008 Annual Report Download - page 20

• maintaining favorable brand recognition and achieving customer perception of value;
• effectively marketing and competitively pricing our products to consumers in several diverse market
segments;
• developing innovative, high-quality products in colors and styles that appeal to consumers of varying
age groups and tastes, and in ways that favorably distinguish us from our competitors; and
• effectively managing our supply chain and distribution strategies in order to provide our products to our
consumers on a timely basis and minimize returns, replacements, and damaged products.
In light of the many competitive challenges facing us, we may not be able to compete successfully. Increased
competition could reduce our sales and harm our operating results and business.
We depend on key domestic and foreign agents and vendors for timely and effective sourcing of our merchandise,
and we may not be able to acquire products in sufficient quantities and at acceptable prices to meet our needs
which would impact our operations and financial results.
Our performance depends, in part, on our ability to purchase our merchandise in sufficient quantities at competitive
prices. We purchase our merchandise from numerous foreign and domestic manufacturers and importers. We have
no contractual assurances of continued supply, pricing or access to new products, and any vendor could change the
terms upon which they sell to us, discontinue selling to us, or go out of business at any time. We may not be able to
acquire desired merchandise in sufficient quantities on terms acceptable to us in the future. Better than expected
sales demand may also lead to customer backorders and lower in-stock positions of our merchandise.
Any inability to acquire suitable merchandise on acceptable terms or the loss of one or more of our key agents or
vendors could have a negative effect on our business and operating results because we would be missing products
that we felt were important to our assortment, unless and until alternative supply arrangements are secured. We
may not be able to develop relationships with new agents or vendors, and products from alternative sources, if
any, may be of a lesser quality and/or more expensive than those we currently purchase.
In addition, we are subject to certain risks, including availability of raw materials, labor disputes, union organizing
activities, vendor financial liquidity, inclement weather, natural disasters, and general economic and political
conditions that could limit our vendors’ ability to provide us with quality merchandise on a timely basis and at a
price that is commercially acceptable. For these or other reasons, one or more of our vendors might not adhere to
our quality control standards, and we might not identify the deficiency before merchandise ships to our stores or
customers. In addition, our vendors may have difficulty adjusting to our changing demands and growing business.
Our vendors’ failure to manufacture or import quality merchandise in a timely and effective manner could damage
our reputation and brands, and could lead to an increase in customer litigation against us and an attendant increase
in our routine litigation costs. Further, any merchandise that does not meet our quality standards could become
subject to a recall, which would damage our reputation and brands, and harm our business.
Our dependence on foreign vendors and our increased overseas operations subject us to a variety of risks and
uncertainties that could impact our operations and financial results.
In fiscal 2008, we sourced our products from vendors in 42 countries outside of the United States. Approximately
59% of our merchandise purchases were foreign-sourced, predominantly from Asia. Our dependence on foreign
vendors means that we may be affected by changes in the relative value of the U.S. dollar to other foreign
currencies, as well as increases in the cost of living in the vendor’s local countries due to the economic
slowdown. For example, any upward valuation in the Chinese yuan, the euro, or any other foreign currency
against the U.S. dollar may result in higher costs to us for those goods. In addition, an increase in the cost of
living in the foreign countries may result in an increase in our costs or in our vendors going out of business.
Although approximately 95% of our foreign purchases of merchandise are negotiated and paid for in U.S. dollars,
declines in foreign currencies and currency exchange rates might negatively affect the profitability and business
prospects of one or more of our foreign vendors. This, in turn, might cause such foreign vendors to demand
higher prices for merchandise in their effort to offset any lost profits associated with any currency devaluation,
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