Pottery Barn 2009 Annual Report Download - page 17

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.
The direct-to-customer channel over the past several years has been strengthened by the introduction of
e-commerce websites in all of our brands and has contributed to the shift we are continuing to see in the
purchasing behavior of our customers across all channels. As a result, our marketing efforts, including the
circulation of catalogs and the use of e-commerce advertising are targeted toward driving sales to all of our
channels, including retail. While we know this shift in behavior is continuing to occur, the quantification of the
sales driven to each channel by our marketing efforts has become increasingly difficult to determine and analyze.
Therefore, our estimate of advertising costs by segment are currently based on historical allocation
methodologies, which may be required to be refined as additional information becomes available.
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. In addition, we send electronic direct marketing communications only to
those customers who have voluntarily provided us with their e-mail addresses. These e-mail addresses are not
shared with any third parties.
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 5.0% of our purchases during fiscal 2009. Approximately 59% of our
merchandise purchases in fiscal 2009 were foreign-sourced from vendors in 40 countries, predominantly from
Asia, of which approximately 96% 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, particularly in
e-commerce, 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, our proprietary customer
list, our e-commerce websites and our Internet marketing capabilities, 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
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 retail and direct-to-customer industries. In anticipation of
our peak season, we hire a substantial number of additional temporary employees in our retail stores, customer
care centers and distribution centers, and incur significant fixed catalog production and mailing costs.
TRADEMARKS, COPYRIGHTS, PATENTS 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 core marks in the U.S., Canada and approximately 40 additional jurisdictions. Exclusive
rights to the trademarks and service marks are held by Williams-Sonoma, Inc. and are used by our subsidiaries
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Form 10-K