Restoration Hardware 2012 Annual Report Download - page 83

Our business depends in part on a strong brand image. We continue to invest in the development of our brand
and the marketing of our business, and if we are not able to maintain and enhance our brand or market our
product offerings, we may be unable to attract a sufficient number of customers or sell sufficient quantities of
our products.
We believe that the brand image we have developed, and the lifestyle image associated with our brand, have
contributed significantly to the success of our business to date. We also believe that maintaining and enhancing
our brand is integral to our business and to the implementation of our strategies for expanding our business. This
will require us to continue to make investments in areas such as marketing and advertising, as well as the day-to-
day investments required for store operations, catalog mailings, website operations and employee training. Our
brand image may be diminished if new products, services or other businesses fail to maintain or enhance our
distinctive brand image. Furthermore, our reputation could be jeopardized if we fail to maintain high standards
for merchandise and service quality, if we fail to maintain high ethical, social and environmental standards for all
of our operations and activities, if we fail to comply with local laws and regulations or if we experience other
negative events that affect our image or reputation. Any failure to maintain a strong brand image could have an
adverse effect on our sales and results of operations.
We are exploring opportunities to expand into new categories or complementary businesses. If we are not
successful in these new categories or business areas, it may have an adverse effect on our results of operations
and our reputation.
We are engaged in ongoing efforts to explore new business opportunities that we believe can leverage our
current business platform. We have developed a number of new product categories and extensions over the last
several years, including Garden & Outdoor, Baby & Child and Small Spaces. We also have introduced other
merchandise categories that enhance the customer experience in our Full Line Design Galleries, including fresh
cut flowers, magazines and tea. We plan further brand-enhancing offerings, such as the planned introduction of
our Contemporary Art business, or a café, wine bar or restaurant adjacent to, or inside of, select Full Line Design
Galleries. We are incubating a number of other new ideas for potential expansion of our business, some of which
may become new core categories or new store concepts and others of which may be primarily offered as
enrichment of the customer experience.
Developing and testing new business opportunities will involve us in business operations and areas of
expertise that would be new to our organization and may require management time and resources. We may not
achieve wide market acceptance or generate revenue sufficient to recoup the cost of developing and operating
such new concepts, which in turn could have a material adverse effect on our results of operations. Any new
businesses we enter may expose us to additional laws, regulations and risks, including the risk that we may incur
ongoing operating expenses in such businesses in excess of revenues, which could harm our results of operations
and financial condition. The financial profile of any such new businesses may be different than our current
financial profile, which could affect our financial performance and the market price for our common stock.
Competition in the home furnishings sector of the retail market may adversely affect our future financial
performance.
The home furnishings sector within the retail market is highly competitive. We compete with the interior
design trade and specialty stores, as well as antique dealers and other merchants that provide unique items and
custom-designed product offerings at higher price points. We also compete with national and regional home
furnishing retailers and department stores. In addition, we compete with mail order catalogs and online retailers
focused on home furnishings. We compete with these and other retailers for customers, suitable retail locations,
vendors, qualified employees and management personnel. Many of our competitors have significantly greater
financial, marketing and other resources than we do and therefore may be able to adapt to changes in customer
preferences more quickly, devote greater resources to the marketing and sale of their products, generate greater
national brand recognition or adopt more aggressive pricing policies than we can. In addition, increased catalog
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Form 10-K