Pier 1 2013 Annual Report Download - page 16

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Failure to maintain positive brand perception and recognition could have a negative impact on the business.
Maintaining a good reputation is critical to the business. The considerable expansion in the use of social
media over recent years has increased the risk that the Company’s reputation could be negatively impacted in a
short amount of time. If the Company is unable to quickly and effectively respond to such incidents, it may suffer
declines in customer loyalty and traffic, vendor relationship issues, and other factors, all of which could
negatively impact the Company’s financial results and its reputation.
Regulatory Risks
The Company is subject to laws and regulatory requirements in many jurisdictions. Changes in these
laws and requirements, or interpretations of them, may result in additional costs to the Company, including the
costs of compliance as well as potential penalties for non-compliance.
Legislation on a local, regional, state or national level has the potential to have a negative effect on the
Company’s profitability or ability to operate its business. Compliance with certain legislation carries with it
significant costs. The Company is subject to oversight by many governmental agencies in the course of operating
its business because of its numerous locations, large number of employees, contact with consumers and
importation and exportation of product. In addition, the Company is subject to regulations regarding consumer
product quality and safety standards. Complying with regulations may cause the Company to incur significant
expenses, including the costs associated with periodic audits. Failure to comply may also result in additional
costs in the form of penalties.
The Company operates in many taxing jurisdictions, including foreign countries. In most of these
jurisdictions, the Company is required to collect state and local sales taxes at the point of sale and remit them to
the appropriate taxing authority. The Company is also subject to income taxes, excise taxes, franchise taxes,
payroll taxes and other special taxes. The Company is also required to maintain various kinds of business and
commercial licenses to operate its stores and other facilities. Rates of taxation are beyond the Company’s control,
and increases in such rates or taxation methods and rules could have a negative impact on the Company’s
financial results. Failure to comply with laws concerning the collection and remittance of taxes and with
licensing requirements could also subject the Company to financial penalties or business interruptions.
Risks Associated with International Trade
As a retailer of imported merchandise, the Company is subject to certain risks that typically do not affect
retailers of domestically produced merchandise.
The Company may order merchandise well in advance of delivery and generally takes title to the
merchandise at the time it is loaded for transport to designated U.S. destinations. Global political unrest, war,
threats of war, terrorist acts or threats, especially threats to foreign and U.S. ports and piracy, disruption in the
operation of the international portion of the Company’s supply chain, or natural disasters could affect the
Company’s ability to import merchandise from certain countries. Fluctuations in foreign currency exchange rates
and the relative value of the U.S. dollar, restrictions on the convertibility of the dollar and other currencies,
duties, taxes and other charges on imports, rising labor costs and cost of living in foreign countries, dock strikes,
worker strikes, import quota systems and other restrictions sometimes placed on foreign trade can affect the
price, delivery and availability of imported merchandise as well as exports to the Company’s stores in other
countries. The inability to import merchandise from China and other countries, unavailability of adequate
shipping capacity at reasonable rates, or the imposition of significant tariffs could have a negative effect on the
financial results of the Company. Freight costs contribute a substantial amount to the cost of imported
merchandise. Monitoring of foreign vendors’ compliance with applicable laws and Company standards,
including quality and safety standards and social compliance issues, is more difficult than monitoring of domestic
vendors.
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