Pottery Barn 2010 Annual Report Download - page 25

systems, or those of our vendors, we may experience interruptions in our business until the damage is repaired,
resulting in the potential loss of customers and revenues. In addition, we may incur costs in repairing any damage
beyond our applicable insurance coverage.
If we are unable to effectively manage our Internet business, our reputation and operating results may be
harmed.
Our Internet business has been our fastest growing channel over the last several years and continues to be a
significant part of our sales success. The success of our Internet business depends, in part, on factors over which
we have limited control. We must successfully respond to changing consumer preferences and buying trends
relating to Internet usage. We are also vulnerable to certain additional risks and uncertainties associated with the
Internet, including: changes in required technology interfaces; website downtime and other technical failures;
costs and technical issues as we upgrade our website software; computer viruses; changes in applicable federal
and state regulations; security breaches; and consumer privacy concerns. In addition, we must keep up to date
with competitive technology trends, including the use of improved technology, creative user interfaces and other
Internet marketing tools such as paid search, which may increase our costs and which may not succeed in
increasing sales or attracting customers. Our failure to successfully respond to these risks and uncertainties might
adversely affect the sales in our Internet business, as well as damage our reputation and brands.
Our failure to successfully manage the costs and performance of our catalog mailings might have a negative
impact on our business.
Catalog mailings are an important component of our business. Postal rate increases, paper costs, printing costs
and other catalog distribution costs affect the cost of our catalog mailings. We rely on discounts from the basic
postal rate structure, which could be changed or discontinued at any time. Market paper costs have fluctuated
significantly during the past and may continue to fluctuate in the future. Future increases in postal rates, paper
costs or printing costs would have a negative impact on our operating results to the extent that we are unable to
offset such increases: by raising prices; by implementing more efficient printing, mailing, delivery and order
fulfillment systems; or through the use of alternative direct-mail formats. In addition, if the performance of our
catalogs declines, if we misjudge the correlation between our catalog circulation and net sales, or if our catalog
circulation optimization strategy overall does not continue to be successful, our results of operations could be
negatively impacted.
We have historically experienced fluctuations in our customers’ response to our catalogs. Customer response to
our catalogs is substantially dependent on merchandise assortment, merchandise availability and creative
presentation, as well as the selection of customers to whom the catalogs are mailed, changes in mailing strategies,
the size of our mailings, timing of delivery of our mailings, as well as the general retail sales environment and
current domestic and global economic conditions. In addition, environmental organizations and other consumer
advocacy groups may attempt to create an unfavorable impression of our paper use in catalogs and our
distribution of catalogs generally, which may have a negative effect on our sales and our reputation. In addition,
we depend upon external vendors to print our catalogs. The failure to effectively produce or distribute our
catalogs could affect the timing of catalog delivery. The timing of catalog delivery has been and can be affected
by postal service delays. Any delays in the timing of catalog delivery could cause customers to forego or defer
purchases, negatively impacting our business and operating results.
Declines in our comparable store sales may harm our operating results and cause a decline in the market price
of our common stock.
Various factors affect comparable store sales, including the number, size and location of stores we open, close,
remodel or expand in any period, the overall economic and general retail sales environment, consumer
preferences and buying trends, changes in sales mix among distribution channels, our ability to efficiently source
and distribute products, changes in our merchandise mix, competition (including competitive promotional
activity and discount retailers), current local and global economic conditions, the timing of our releases of new
merchandise and promotional events, the success of marketing programs, the cannibalization of existing store
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Form 10-K