Pottery Barn 2009 Annual Report Download - page 19

We are unable to control many of the factors affecting consumer spending, and declines in consumer spending on
home furnishings in general could reduce demand for our products.
Our business depends on consumer demand for our products and, consequently, is sensitive to a number of
factors that influence consumer spending, including general economic conditions, disposable consumer income,
fuel prices, recession and fears of recession, unemployment, war and fears of war, inclement weather, availability
of consumer credit, consumer debt levels, conditions in the housing market, interest rates, sales tax rates and rate
increases, inflation, consumer confidence in future economic conditions and political conditions, and consumer
perceptions of personal well-being and security. In particular, the current economic downturn has led to
decreased discretionary spending, which has adversely impacted our business. In addition, a decrease in home
purchases has led and may continue to lead to significantly decreased consumer spending on home products.
These factors have affected our various brands and channels differently. Adverse changes in factors affecting
discretionary consumer spending have reduced and may continue to further reduce consumer demand for our
products, thus reducing our sales and harming our business and operating results.
If we are unable to identify and analyze factors affecting our business, anticipate changing consumer preferences
and buying trends, and manage our inventory commensurate with customer demand, our sales levels and profit
margin may decline.
Our success depends, in large part, upon our ability to identify and analyze factors affecting our business and to
anticipate and respond in a timely manner to changing merchandise trends and customer demands. For example,
in the specialty home products business, style and color trends are constantly evolving. Consumer preferences
cannot be predicted with certainty and may change between selling seasons. Changes in customer preferences
and buying trends may also affect our brands differently. We must be able to stay current with preferences and
trends in our brands and address the customer tastes for each of our target customer demographics. We must also
be able to identify and adjust the customer offerings in our brands to cater to customer demands. For example, a
change in customer preferences for children’s room furnishings may not correlate to a similar change in buying
trends for other home furnishings. If we misjudge either the market for our merchandise or our customers’
purchasing habits, our sales may decline significantly, and we may be required to mark down certain products to
sell the resulting excess inventory or to sell such inventory through our outlet stores or other liquidation channels
at prices which are significantly lower than our retail prices, either of which would negatively impact our
business and operating results.
In addition, we must manage our inventory effectively and commensurate with customer demand. Much of our
inventory is sourced from vendors located outside the United States. Thus, we usually must order merchandise,
and enter into contracts for the purchase and manufacture of such merchandise, up to twelve months in advance
of the applicable selling season and frequently before trends are known. The extended lead times for many of our
purchases may make it difficult for us to respond rapidly to new or changing trends. Our vendors also may not
have the capacity to handle our demands or may go out of business in times of economic crisis. In addition, the
seasonal nature of the specialty home products business requires us to carry a significant amount of inventory
prior to peak selling season. As a result, we are vulnerable to demand and pricing shifts and to misjudgments in
the selection and timing of merchandise purchases. If we do not accurately predict our customers’ preferences
and acceptance levels of our products, our inventory levels will not be appropriate, and our business and
operating results may be negatively impacted.
Our sales may be negatively impacted by increasing competition from companies with brands or products similar
to ours.
The specialty retail and direct-to-customer business is highly competitive. Our specialty retail stores, direct mail
catalogs and e-commerce websites compete with other retail stores, other direct mail catalogs and other
e-commerce websites that market lines of merchandise similar to ours. We compete with national, regional and
local businesses utilizing a similar retail store strategy, as well as traditional furniture stores, department stores
and specialty stores. The substantial sales growth in the direct-to-customer industry within the last decade has
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Form 10-K