Pottery Barn 2014 Annual Report Download - page 22

unauthorized disclosure of our customer data, we may be required to undertake costly notification procedures.
Compliance with these laws will likely increase the costs of doing business. If we fail to implement appropriate
safeguards or to detect and provide prompt notice of unauthorized access as required by some of these laws, we
could be subject to potential claims for damages and other remedies, which could be significantly in excess of
our insurance coverage and could harm our business.
If we are unable to effectively manage our e-commerce business, our reputation and operating results may be
harmed.
Our e-commerce channel has been our fastest growing business over the last several years and is a significant
part of our sales and profits. The success of our e-commerce business depends, in part, on third parties and
factors over which we have limited control. We must continually respond to changing consumer preferences and
buying trends relating to e-commerce usage. Our success in e-commerce has been strengthened in part by our
ability to understand the buying trends of visitors to our websites and to personalize the experience they have
with us. We also utilize interest-based advertising to target internet users whose behavior indicates they might be
interested in our products. Current or future legislation may reduce or restrict our ability to use these certain
techniques, which could reduce the effectiveness of our marketing efforts.
We are also vulnerable to certain additional risks and uncertainties associated with our e-commerce websites,
including: changes in required technology interfaces; website downtime and other technical failures; internet
connectivity issues; 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 new or improved technology, evolving
creative user interfaces and other e-commerce marketing trends such as paid search, re-targeting, and the
proliferation of mobile usage, among others, 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 or margin in our e-commerce business, as well as damage our reputation and brands.
Our dependence on foreign vendors and our increased global operations subject us to a variety of risks and
uncertainties that could impact our operations and financial results.
Approximately 64% of our merchandise purchases in fiscal 2014 were sourced from foreign venders in 51
countries, predominantly in Asia and Europe. Our dependence on foreign vendors means that we may be affected
by changes in the value of the U.S. dollar relative to other foreign currencies. For example, any upward valuation
in the Chinese yuan, the euro, or any other foreign currency against the U.S. dollar may result in higher costs to
us for those goods. Although approximately 98% of our foreign purchases of merchandise are negotiated and
paid for in U.S. dollars, declines in foreign currencies and currency exchange rates might negatively affect the
profitability and business prospects of one or more of our foreign vendors. This, in turn, might cause such foreign
vendors to demand higher prices for merchandise in their effort to offset any lost profits associated with any
currency devaluation, delay merchandise shipments to us, or discontinue selling to us, any of which could
ultimately reduce our sales or increase our costs. In addition, the rising cost of labor in the countries in which our
foreign vendors operate has resulted in increases in our costs of doing business. Any further increases in the cost
of living in such countries may result in additional increases in our costs or in our foreign vendors going out of
business.
We, and our foreign vendors, are also subject to other risks and uncertainties associated with changing economic
and political conditions outside of the United States. These risks and uncertainties include import duties and quotas,
compliance with anti-dumping regulations, work stoppages, economic uncertainties and adverse economic
conditions (including inflation and recession), foreign government regulations, employment matters, wars and fears
of war, political unrest, natural disasters, regulations to address climate change and other trade restrictions. We
cannot predict whether any of the countries from which our raw materials or products are sourced, or in which our
products are currently manufactured or may be manufactured in the future, will be subject to trade restrictions
imposed by the U.S. or foreign governments or the likelihood, type or effect of any such restrictions. Any event
causing a disruption or delay of imports from foreign vendors, including labor disputes resulting in work disruption
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