Pottery Barn 2014 Annual Report Download - page 27

provide delivery services to meet our shipping needs, disruptions or increased fuel costs, and costs associated
with any regulations to address climate change. Failure to deliver merchandise in a timely and effective manner
could damage our reputation and brands. In addition, fuel costs have been volatile and airline and other
transportation companies continue to struggle to operate profitably, which could lead to increased fulfillment
expenses. Any rise in fulfillment expenses could negatively affect our business and operating results.
Our failure to successfully manage our order-taking and fulfillment operations could have a negative impact on
our business and operating results.
Our e-commerce business depends, in part, on our ability to maintain efficient and uninterrupted order-taking and
fulfillment operations in our customer care centers and on our e-commerce websites. Disruptions or slowdowns
in these areas could result from disruptions in telephone or network services, power outages, inadequate system
capacity, system hardware or software issues, computer viruses, security breaches, human error, changes in
programming, union organizing activity, disruptions in our third party labor contracts, natural disasters or
adverse weather conditions. Industries that are particularly seasonal, such as the home furnishings business, face
a higher risk of harm from operational disruptions during peak sales seasons. These problems could result in a
reduction in sales as well as increased selling, general and administrative expenses.
In addition, we face the risk that we cannot hire enough qualified employees to support our e-commerce
operations, or that there will be a disruption in the workforce we hire from our third party providers, especially
during our peak season. The need to operate with fewer employees could negatively impact our customer service
levels and our operations.
Our facilities and systems, as well as those of our vendors, are vulnerable to natural disasters and other
unexpected events, any of which could result in an interruption in our business and harm our operating results.
Our retail stores, corporate offices, distribution centers, infrastructure and e-commerce operations, as well as the
operations of our vendors from which we receive goods and services, are vulnerable to damage from
earthquakes, tornadoes, hurricanes, fires, floods or other volatile weather, power losses, telecommunications
failures, hardware and software failures, computer viruses and similar events. If any of these events result in
damage to our facilities or 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.
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, such as the recent increases
that went into effect in the U.S. in 2013 and 2014, 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. Further, the U.S. Postal
Service may raise rates in the future, which could negatively impact our business. The cost of paper, printing and
catalog distribution also impacts our catalog business. We recently consolidated all of our catalog printing work
with one printer. Our dependence on one vendor subjects us to various risks if the vendor fails to perform under
our agreement. Paper costs have also fluctuated significantly in the past and may continue to fluctuate in the
future. Also, consolidation within the paper industry has reduced the number of potential suppliers capable of
meeting our paper requirements, and further consolidation could limit our ability in the future to obtain favorable
terms including price, custom paper quality, paper quantity, and service. Future increases in postal rates, paper
costs or printing costs could have a negative impact on our operating results to the extent that we are unable to
offset such increases by raising prices, 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
strategy overall does not continue to be successful, our results of operations could be negatively impacted.
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Form 10-K