Pottery Barn 2013 Annual Report Download - page 24

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. Our retail stores in Canada, Australia and the United
Kingdom, and our operations throughout Asia and Europe expose us to market risk associated with foreign
currency exchange rate fluctuations. Although we use instruments to hedge certain foreign currency risks, such
hedges may not succeed in offsetting all of the impact of foreign currency rate movements and generally only
delay the impact of foreign currency rate movements on our business and financial results. Further, because we
do not hedge against all of our foreign currency exposure our business will continue to be susceptible to foreign
currency fluctuations. Our ultimate realized loss or gain with respect to currency fluctuations will generally
depend on the size and type of the transactions that we enter into, the currency exchange rates associated with
these exposures, changes in those rates and whether we have entered into foreign currency hedge contracts to
offset these exposures. All of these factors could materially impact our results of operations, financial position
and cash flows.
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. In fiscal 2013, we entered into a franchise agreement with an unaffiliated franchisee to operate
stores in the Philippines, beginning in 2014. We continue to seek out and identify new select franchise
partnerships for select countries. 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 these
franchise arrangements, 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 fiscal 2013, we opened our first company-owned retail stores and launched e-commerce sites outside of North
America 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 both directly and through our
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 and branch offices throughout Asia, Australia 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
10