Restoration Hardware 2012 Annual Report Download - page 77

Changes in consumer spending or the housing market may significantly harm our revenue and results of
operations.
Our business depends on consumer demand for our products and, consequently, is sensitive to a number of
factors that influence consumer spending in the retail home furnishings sector, including, among other things, the
general state of the economy, capital and credit markets, consumer confidence, general business conditions, the
availability and cost of consumer credit, the level of consumer debt, interest rates, level of taxes affecting
consumers, housing prices, new construction and other activity in the housing sector and the state of the mortgage
industry and other aspects of consumer credit tied to housing, including the availability and pricing of mortgage
refinancings and home equity lines of credit. We believe that a number of these factors have had, and may continue
to have, an adverse impact on the retail home furnishings sector, and have also affected our business and results, and
these factors may make it difficult for us to accurately predict our operating and financial results for future periods.
The housing market may be commencing a recovery after a prolonged downtrend, and rising levels of home
purchases and remodelings, in turn, may increase consumer spending on home furnishings. However, the overall
economic outlook remains uncertain and there can be no assurance that any economic or housing recovery will be
sustained or that our business will continue to perform well even in a stronger housing market.
We are undertaking a large number of business initiatives at the same time and if these new initiatives are not
successful, they may have a negative impact on our operating results.
We are experiencing rapid growth and undertaking a large number of new business initiatives. For example,
we have developed and continue to refine and enhance our Full Line Design Gallery format which involves
larger store square footage. We plan to continue to open Full Line Design Galleries in select major metropolitan
markets and we expect to close a number of our older stores and replace them with the Full Line Design Gallery
format. We also continue to add new product categories and to expand product assortments. For example, we
introduced our new Tableware category in Spring 2013. We are currently contemplating other new product lines
and extensions and complementary brand-enhancing businesses, as well as expanding sales to international
markets. In addition, we are continuing a number of new initiatives in other areas of our business, including
product sourcing and distribution and management information systems. For example, we have reduced the use
of third-party buying agents in most foreign locations. Further, we continue to evolve our Source Book strategy.
We may incur costs for these new initiatives before we realize any corresponding revenue.
The number of current business initiatives could strain our financial, operational and management resources.
In addition, these initiatives may not be successful. If we are not successful in managing our current growth and
the large number of new initiatives that are underway, we might experience an adverse impact on our financial
performance and results of operations. All of the foregoing risks may be compounded in any economic downturn.
If we fail to achieve the intended results of our current business initiatives, or if the implementation of these
initiatives is delayed or abandoned, diverts management’s attention or resources from other aspects of our
business or costs more than anticipated, we may experience inadequate return on investment for some of our
business initiatives, which would have a negative effect on our operating results.
Our growth strategy and performance depend on our ability to purchase our merchandise in sufficient
quantities at competitive prices, including our products that are produced by artisans and specialty vendors,
and any disruptions we experience in our ability to obtain our products in a timely fashion or in the quantities
required could have a material adverse effect on our business.
We do not own or operate any manufacturing facilities. We instead purchase all of our merchandise from a
large number of vendors, many of which are the sole sources for particular products. Our growth strategy
includes expanding the amount of products we sell, and our performance depends on our ability to purchase our
merchandise in sufficient quantities at competitive prices. However, many of our key products are produced by
artisans, specialty vendors and other vendors that may have limited production capacity. In addition, some of our
vendors are small and undercapitalized firms. A number of our vendors, particularly our artisan vendors, may
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Form 10-K