Pottery Barn 2012 Annual Report Download - page 23

Our efforts to expand globally may not be successful and could negatively impact the value of our brands, and
our increasing global presence presents additional challenges.
We are currently growing our business and increasing our global presence by opening new stores outside of the
United States and by offering shipping globally through a third party vendor. We have limited experience with
global sales, understanding consumer preferences and anticipating buying trends in different countries, and
marketing to customers overseas. Moreover, global awareness of our brands and our products may not be high.
Consequently, we may not be able to successfully compete with established brands in these markets and our
global sales may not 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 any of our third party vendors fail to comply with any applicable regulations or laws, the
value of our brands may be harmed and negatively affect our future opportunities for global growth. Further, the
administration of our global expansion may divert management attention and require more resources than we
expect. In addition, we are exposed to foreign currency exchange rate risk with respect to our operations
denominated in currencies other than the U.S. dollar. We intend to use instruments in the future to hedge certain
foreign currency risks. These programs may not succeed in offsetting the negative impact of foreign currency
rate fluctuations on our business and results of operations.
In fiscal 2009, we entered into a franchise agreement with an unaffiliated franchisee to operate stores in the
Middle East. Under this agreement, our franchisee operates stores that sell goods purchased from us under our
brand names. We have no prior experience directly opening stores outside of North America and we have limited
experience opening stores through third party arrangements. The effect of these franchise 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 our franchise 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.
In August 2012, we announced the opening of four stores and our first e-commerce site in Australia. The four
stores are currently slated to open simultaneously with the launch of our e-commerce site in May 2013, and are
our first locations outside of North America to be owned and operated by us as part of our overall global
expansion strategy. While our global expansion to date has been a small part of our business, we plan to continue
to increase the number of stores we open directly and through franchise arrangements. Our ability to expand
globally is dependent on numerous factors, including the demand for our products in new global markets and the
cost of real estate in those markets.
We have limited experience operating on a global basis and our failure to effectively manage the risks and
challenges inherent in a global business could adversely affect our business, operating results and financial
condition and growth prospects.
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
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.
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Form 10-K