Restoration Hardware 2012 Annual Report Download - page 84

mailings by our competitors may adversely affect response rates to our own catalog mailings. Moreover,
increased competition may result, and has resulted in the past, in potential or actual litigation between us and our
competitors relating to such activities as competitive sales, hiring practices and other matters. As a result,
increased competition may adversely affect our future financial performance, and we cannot assure you that we
will be able to compete successfully in the future.
We believe that our ability to compete successfully is determined by several factors, including, among other
things, the quality of our product selection, our brand, our merchandise presentation and value proposition, customer
service, pricing and store locations. We may not ultimately succeed in competing with other retailers in our market.
Disruptions in the global financial markets may make it difficult for us to borrow a sufficient amount of
capital to finance the carrying costs of inventory and to pay for capital expenditures and operating costs,
which could negatively affect our business.
Disruptions in the global financial markets and banking systems have made credit and capital markets more
difficult for companies to access, even for some companies with established revolving or other credit facilities.
Under the credit agreement governing the Restoration Hardware, Inc. revolving line of credit, each financial
institution that is part of the syndicate for the revolving line of credit is responsible for providing a portion of the
loans to be made under the revolving line of credit. Factors that have previously affected our borrowing ability
under the revolving line of credit have included the borrowing base formula limitations, adjustments in the
appraised value of our inventory used to calculate the borrowing base and the availability of each of our lenders
to advance its portion of requested borrowing drawdowns under the facility. If, in connection with a disruption in
the global financial markets or otherwise, any participant, or group of participants, with a significant portion of
the commitments in the revolving line of credit fails to satisfy its obligations to extend credit under the facility,
and if we are unable to find a replacement for such participant or group of participants on a timely basis (if at
all), then our liquidity and our business may be materially adversely affected.
Reductions in the volume of mall traffic or closing of shopping malls as a result of unfavorable economic
conditions or changing demographic patterns could significantly reduce our sales and leave us with unsold
inventory.
Most of our stores are currently located in shopping malls. Sales at these stores are derived, in part, from the
volume of traffic in those malls. These stores benefit from the ability of the malls’ “anchor” tenants, generally
large department stores and other area attractions, to generate consumer traffic in the vicinity of our stores and
the continuing popularity of the malls as shopping destinations. Unfavorable economic conditions, particularly in
certain regions, have adversely affected mall traffic and resulted in the closing of certain anchor stores and have
threatened the viability of certain commercial real estate firms which operate major shopping malls. A
continuation of this trend, including failure of a large commercial landlord or continued declines in the popularity
of mall shopping generally among our customers, could reduce our sales and leave us with excess inventory. We
may respond by increasing markdowns or initiating marketing promotions to reduce excess inventory, which
would further adversely impact our results of operations.
Our business depends upon the successful operation of our distribution facilities, furniture home delivery
hubs and customer service center, as well as our ability to fulfill orders and to deliver our merchandise to our
customers in a timely manner.
Our business depends upon the successful operation of our distribution centers, furniture home delivery
hubs and customer service center, as well as our order management and fulfillment services and the re-stocking
of inventories within our stores. The efficient flow of our merchandise requires that our facilities have adequate
capacity to support our current level of operations, and any anticipated increased levels that may follow from any
growth of our business.
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