Pottery Barn 2014 Annual Report Download - page 31

or stoppages and higher labor costs. In addition, there appears to be a growing number of wage-and-hour lawsuits
and other employment-related lawsuits against retail companies, especially in California. State, federal and
global laws and regulations regarding employment change frequently and the ultimate cost of compliance cannot
be precisely estimated. Further, there have been and may continue to be increases in minimum wage and health
care requirements. Any changes in regulations, the imposition of additional regulations, or the enactment of any
new or more stringent legislation that impacts employment and labor, trade, or health care, could have an adverse
impact on our financial condition and results of operations.
We contract with various agencies to provide us with qualified personnel for our workforce. Any negative publicity
regarding these agencies, such as in connection with immigration issues or employment practices, could damage our
reputation, disrupt our ability to obtain needed labor or result in financial harm to our business, including the
potential loss of business-related financial incentives in the jurisdictions where we operate. Although we strive to
secure long-term contracts on favorable terms with our service providers and other vendors, we may not be able to
avoid unexpected operating cost increases in the future, such as those associated with minimum wage increases or
enhanced health care requirements. Further, we incur substantial costs to warehouse and distribute our inventory. In
fiscal 2014, we continued to insource furniture delivery hubs in certain geographies and continued with the
regionalization of our retail fulfillment capabilities. Significant increases in our inventory levels may result in
increased warehousing and distribution costs, such as costs related to additional distribution centers, which we may
not be able to lease on acceptable terms, if at all. Such increases in inventory levels may also lead to increases in
costs associated with inventory that is lost, damaged or aged. Higher than expected costs, particularly if coupled
with lower than expected sales, would negatively impact our business and operating results. In addition, in times of
economic uncertainty, these long-term contracts may make it difficult to quickly reduce our fixed operating costs,
which could negatively impact our business and operating results.
We are undertaking certain systems changes that might disrupt our business operations.
Our success depends, in part, on our ability to source, sell and distribute merchandise efficiently through
appropriate systems and procedures. We are in the process of substantially modifying our information technology
systems, which involves updating or replacing legacy systems with successor systems over the course of several
years. There are inherent risks associated with replacing our core systems, including supply chain and
merchandising systems disruptions, that could affect our ability to get the correct products into the appropriate
stores and delivered to customers. We may not successfully launch these new systems, or the launch of such
systems may result in disruptions to our business operations. In addition, changes to any of our software
implementation strategies could result in the impairment of software-related assets. We are also subject to the
risks associated with the ability of our vendors to provide information technology solutions to meet our needs.
Any disruptions could negatively impact our business and operating results.
We outsource certain aspects of our business to third party vendors and are in the process of insourcing certain
business functions from third party vendors, both of which subject us to risks, including disruptions in our
business and increased costs.
We outsource certain aspects of our business to third party vendors that subject us to risks of disruptions in our
business as well as increased costs. For example, we utilize outside vendors for such things as payroll processing,
email marketing and various distribution center services. Accordingly, we are subject to the risks associated with
their ability to successfully provide the necessary services to meet our needs. If our vendors are unable to
adequately protect our data and information is lost, our ability to deliver our services is interrupted, or our
vendors’ fees are higher than expected, then our business and operating results may be negatively impacted.
In addition, we are in the process of insourcing certain aspects of our business, including the management of
certain furniture manufacturing and delivery, and the management of our global vendors, each of which were
previously outsourced to third party providers. We may also need to continue to insource other aspects of our
business in the future in order to control our costs and to stay competitive. This may cause disruptions in our
business and result in increased cost to us. In addition, if we are unable to perform these functions better than, or
at least as well as, our third party providers, our business may be harmed.
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Form 10-K