Pier 1 2007 Annual Report Download - page 11

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arrangement has been restructured or the lease obligation has been settled. The Company cannot give
assurance that a reduction in openings or increase in closings will result in greater profits.
Failure to attract and retain an effective management team or changes in the costs or availability of a
suitable workforce to manage and support the Company’s stores and distribution facilities could adversely
affect the business.
The Company’s success is dependent, in a large part, on being able to successfully attract, motivate and
retain a qualified management team and employees. Sourcing qualified candidates to fill important positions
within the Company, especially management, in the highly competitive retail environment may prove to be a
challenge. The inability to recruit and retain such individuals could result in turnover in the stores and the
distribution facilities, which could have an adverse effect on the business. Management will continue to assess
the Company’s compensation structure in an effort to attract future qualified candidates or retain current
experienced management team members.
Occasionally the Company experiences union organizing activities in its non-unionized distribution
facilities. These types of activities may result in work slowdowns or stoppages and higher labor costs. Any
increase in costs associated with labor organization at the distribution facilities could result in higher costs to
distribute inventory and could negatively impact merchandise margins.
Factors affecting the general strength of the economy, should they decline, could result in reduced
consumer demand for the Company’s products.
The Company’s successful execution relies on customer demand for its merchandise, which is affected by
factors that are impacted by prevailing economic conditions. A general slowdown in the United States
economy and an uncertain economic outlook may adversely affect consumer spending which in turn could
result in lower sales and unfavorable operating results. A prolonged economic downturn could have a material
adverse effect on the business, and its financial condition and results of operations.
The Company operates in a highly competitive retail environment with companies offering similar
merchandise, and if customers are lost to the Company’s competitors, sales could decline.
The Company’s retail locations, e-commerce web site and direct mail catalog business operate in the
highly competitive specialty retail business competing with specialty sections of large department stores, home
furnishing stores, small specialty stores, mass merchandising discounters and catalog and Internet retailers.
Management believes that in addition to competing for sales, it competes on the basis of pricing and quality of
products, constantly changing merchandise assortment, visual presentation of its merchandise and customer
service. The level of competition is not anticipated to decrease and if the Company is unable to maintain a
competitive position, it could experience negative pressure on retail prices, which in turn could result in
reduced merchandise margins and operating results.
The Company’s business is subject to seasonal variations, with a significant portion of its sales and
earnings occurring during two months of the year.
Approximately 25% of the Company’s sales generally occur during the November-December holiday
selling season. Failure to predict consumer demand correctly during these months could result in lost sales or
gross margin erosion if merchandise must be marked down to clear inventory.
The Company’s business may be harmed by adverse weather conditions and natural disasters.
Extreme or undesirable weather can affect customer traffic in retail stores as well as customer shopping
behavior. Natural disasters such as earthquakes, weather phenomena, and events causing infrastructure failures
could adversely affect any of the Company’s retail locations, distribution centers, administrative facilities,
ports, or locations of its suppliers domestically and in foreign countries.
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