Banana Republic 2011 Annual Report Download - page 23

Adverse changes in the global economy, or in any of the regions in which we sell our products, could reduce
consumer confidence, and thereby could negatively affect earnings and have a material adverse effect on our
results of operations. For example, the global financial economic downturn that began in 2008 and continued
throughout 2011, particularly in Europe, has negatively impacted consumer confidence. In a challenging and
uncertain economic environment, we cannot predict whether or when such circumstances may improve or
worsen, or what impact, if any, such circumstances could have on our business, results of operations, cash flows,
and financial position.
Our business is highly competitive.
The global specialty apparel retail industry is highly competitive. We compete with local, national, and global
department stores, specialty and discount store chains, independent retail stores, and online businesses that
market similar lines of merchandise. We face a variety of competitive challenges including:
• anticipating and quickly responding to changing fashion trends and consumer demands;
• attracting consumer traffic;
• competitively pricing our products and achieving customer perception of value;
• maintaining favorable brand recognition and effectively marketing our products to consumers in several diverse
market segments;
• developing innovative, high-quality products in sizes, colors, and styles that appeal to consumers of varying age
groups and tastes;
• sourcing merchandise efficiently; and
• providing strong and effective marketing support.
In addition, our franchisees face significant competition in the markets in which they operate. If we or our
franchisees are not able to compete successfully in the United States or internationally, our results of operations
could be adversely affected.
We must successfully gauge apparel trends and changing consumer preferences to succeed.
Our success is largely dependent upon our ability to gauge the tastes of our customers and to provide merchandise
that satisfies customer demand in a timely manner. However, lead times for many of our purchases are long,
which may make it more difficult for us to respond rapidly to new or changing fashion trends or consumer
acceptance of our products. The global specialty retail business fluctuates according to changes in consumer
preferences, dictated in part by fashion and season. To the extent we misjudge the market for our merchandise or
the products suitable for local markets or fail to execute trends and deliver product to market as timely as our
competitors, our sales will be adversely affected, and the markdowns required to move the resulting excess
inventory will adversely affect our operating results. Some of our past product offerings have not been well
received by our broad and diverse customer base. Merchandise misjudgments could have a material adverse effect
on our operating results.
Our ability to anticipate and effectively respond to changing fashion trends depends in part on our ability to attract
and retain key personnel in our design, merchandising, marketing, and other functions. Competition for this
personnel is intense, and we cannot be sure that we will be able to attract and retain a sufficient number of
qualified personnel in future periods.
Fluctuations in the global specialty retail business especially affect the inventory owned by apparel retailers, as
merchandise usually must be ordered well in advance of the season and frequently before fashion trends are
evidenced by customer purchases. In addition, the nature of the global specialty retail business requires us to carry
a significant amount of inventory, especially prior to the peak holiday selling season when we build up our
inventory levels. We must enter into contracts for the purchase and manufacture of merchandise well in advance
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