Pottery Barn 2011 Annual Report Download - page 29

increase the number of stores and countries in which these franchises operate as part of our efforts to expand
globally. The effect of these arrangements on our business and results of operations is uncertain and will depend
upon various factors, including the demand for our products in new global markets. In addition, certain aspects of
these arrangements are not directly within our control, such as the ability of our franchisee to meet its projections
regarding store openings and sales. Moreover, while the agreement we have entered into may provide us with
certain termination rights, to the extent that our franchisee does not operate its stores in a manner consistent with
our requirements regarding our brand identities and customer experience standards, the value of our brands could
be impaired. In addition, in connection with this franchise agreement, we have and will continue to implement
certain new processes that may subject us to additional regulations and laws, such as U.S. export regulations.
Failure to comply with any applicable regulations or laws could have an adverse effect on our results of
operations.
We plan to increase our global presence, including through global shipping that we currently offer through a third
party vendor. We have limited experience with international sales, anticipating consumer tastes and trends in
different countries, and marketing to customers overseas. Moreover, global awareness of our brands and our
products may not be high and, as a result, our global sales may not be successful or result in the revenues we
anticipate. Also, our products may not be accepted, either due to foreign legal requirements or due to different
consumer tastes and trends. If our global growth initiatives are not successful, or if we or our third party vendors
fail to comply with any applicable regulations or laws, the value of our brands may be impaired and negatively
affect our future opportunities for global growth, which could adversely affect our results of operations.
In addition, we operate several subsidiaries in Asia and Europe, which includes managing overseas employees,
and plan to continue expanding these overseas operations in the future. We have limited experience operating
overseas subsidiaries and managing non-U.S. employees and, as a result, may encounter cultural challenges with
local practices and customs that may result in harm to our reputation and the value of our brands. Our global
presence also exposes us to the laws and regulations of these jurisdictions, including those related to marketing,
privacy, data protection and employment. We may be unable to keep current with government requirements as
they change from time to time. Our failure to comply with such laws and regulations may harm our reputation,
adversely affect our future opportunities for growth and expansion in these countries, and harm our business and
operating results.
Moreover, our global operations subject us to a variety of risks and challenges, including:
• increased management, infrastructure and legal compliance costs;
• increased financial accounting and reporting requirements and complexities;
• general economic conditions, changes in diplomatic and trade relationships and political and social
instability in each country or region;
• economic uncertainty around the world;
• compliance with foreign laws and regulations and the risks and costs of non-compliance with such laws
and regulations;
• compliance with U.S. laws and regulations for foreign operations;
• dependence on certain third parties, including vendors and other service providers, with whom we do
not have extensive experience;
• fluctuations in currency exchange rates and the related effect on our financial results;
• reduced or varied protection for intellectual property rights in some countries and practical difficulties
of enforcing such rights abroad; and
• compliance with the laws of foreign taxing jurisdictions and the overlapping of different tax regimes.
Any of these risks could adversely affect our global operations, reduce our global revenues or increase our
operating costs, adversely affecting our business, operating results and financial condition and growth prospects.
In addition, as we continue to expand our global operations, we are subject to certain U.S. laws, including the
Foreign Corrupt Practices Act, in addition to the laws of the foreign countries in which we operate. We must
ensure that our employees comply with these laws. If any of our overseas operations, or our employees or agents,
violates such laws, we could become subject to sanctions or other penalties that could negatively affect our
reputation, business and operating results.
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Form 10-K