Pier 1 2009 Annual Report Download - page 17

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 home office, stores and the distribution facilities, which could have an adverse effect on the
business. Management will continue to assess the Company’s compensation and benefit 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.
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 operate in the highly competitive specialty retail business
competing with specialty sections of large department stores, home furnishing stores, small specialty
stores and mass merchandising discounters. Management believes that as it is competing for sales, it
does so on the basis of pricing and quality of products, constantly changing merchandise assortment,
visual presentation of its merchandise and customer service. The Company could also experience added
short-term competition when other retailers are liquidating merchandise for various reasons. If the
Company is unable to maintain a competitive position, it could experience negative pressure on retail
prices and loss of customers, 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 significantly 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.
Risks Associated with Dependence on Technology
The Company is heavily dependent on various kinds of technology in the operation of its business.
Failure of any critical software applications, technology infrastructure, telecommunications, data
communications, or networks could have a material adverse effect on the Company’s ability to manage
the merchandise supply chain, sell merchandise, accomplish payment functions or report financial data.
Although the Company maintains off-site data backups, a concentration of technology related risk does
exist in certain locations.
The Company outsources certain business processes to third-party vendors that subject the Company to
risks, including disruptions in business and increased costs.
Some business processes that are dependent on technology are outsourced to third parties. Such
processes include gift card tracking and authorization, credit card authorization and processing,
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