Restoration Hardware 2015 Annual Report Download - page 23

20
In addition, we collect and store personal information from consumers in the course of doing business. States and the federal
government have enacted additional laws and regulations to protect consumers against identity theft, including laws governing
treatment of personally identifiable information. These laws have increased the costs of doing business and, if we fail to implement
appropriate safeguards or we fail 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. If we were required to pay any significant amount in satisfaction
of claims under these laws, or if we were forced to cease our business operations for any length of time as a result of our inability to
comply fully with any such law, our business, results of operations and financial condition could be adversely affected. We may also
incur legal costs if we are required to defend our methods of collection, processing and storage of personal data. Investigations,
lawsuits, or adverse publicity relating to our methods of handling personal data could result in increased costs and negative market
reaction.
Furthermore, data security breaches suffered by well-known companies and institutions have attracted a substantial amount of
media attention, prompting additional state and federal proposals addressing data privacy and security. As the data privacy and
security laws and regulations evolve, we may be subject to more extensive requirements to protect the customer information that we
process in connection with the purchases of our products. Our failure to successfully respond to these risks and uncertainties could
reduce website sales and have a material adverse effect on our business or results of operations.
We currently maintain insurance to protect against cybersecurity risks and incidents. However, there can be no assurance that
such insurance coverage will be available in the future on commercially reasonable terms or at commercially reasonable rates. In
addition, insurance coverage may be insufficient or may not cover certain cybersecurity losses and liability.
We face product liability risks and certain of our products may be subject to recalls or other actions by regulatory authorities, and
any such recalls or similar actions could have a material adverse effect on our business.
We face product liability, product safety and product compliance risks relating to the design, manufacturing, raw material
sourcing, testing, contents, importation, sale, use and performance of some of our products. The products we sell must be designed and
manufactured to be safe for their intended purposes. Some of our products must comply with certain federal and state laws and
regulations. For example, some of our products are subject to the Consumer Product Safety Act, the Federal Hazardous Substances
Act and the Consumer Product Safety Improvement Act, or the “CPSIA”, which empower the Consumer Product Safety Commission,
or the “CPSC”, to establish product bans, substance bans, substance limits, performance requirements, test methods and other
compliance verification processes. The CPSC is empowered to take action against hazards presented by consumer products, up to and
including product recalls. We are required to report certain incidents related to the safety and compliance of our products to the CPSC,
and failure to do so could result in a civil penalty. The CPSC is particularly active in regulation and enforcement activities related to
the kinds of children’s products sold in our RH Baby & Child division. Certain of the products we sell are subject to the Lacey Act,
prohibiting the importation and sale of products containing illegally harvested wood, among other things. Likewise, many of our
products are subject to the regulations of the California Air Resources Board, or the “CARB”, regarding formaldehyde emissions from
composite wood products (e.g., plywood and medium density fiberboard).
If we experience negative publicity, regardless of any factual basis, customer complaints or litigation alleging illness or injury,
related to our products, or if there are allegations of failure to comply with applicable regulations, our brand reputation would be
harmed.
We maintain a product safety and compliance program to help ensure our products are safe, legal and made consistently in
compliance with our values. Nevertheless, our products have, from time to time, been subject to recall for product safety and
compliance reasons, and concerns of product safety and compliance could result in future voluntary or involuntary removal of
products, product recalls, other actions by applicable government authorities or product liability, personal injury or property damage
claims.
Federal, state, provincial and local legislators and regulators in the United States and Canada, where our products are sold,
continue to adopt new product laws and regulations. These new laws and regulations have increased or likely will significantly
increase the regulatory requirements governing the manufacture and sale of certain of our products as well as the potential penalties
for noncompliance with applicable regulations. In addition, product recalls, removal of products, product compliance enforcement
actions and defending product liability claims can result in, among other things, lost sales, diverted resources, potential harm to our
reputation and increased customer service costs, any of which could have a material adverse effect on our business and results of
operations.