Restoration Hardware 2012 Annual Report Download - page 86

of “most favored nation” trading status by the United States in relation to a particular foreign country, work
stoppages, including without limitation as a result of events such as longshoremen strikes, transportation and
other delays in shipments, including without limitation as a result of heightened security screening and inspection
processes or other port-of-entry limitations or restrictions in the United States, freight cost increases, economic
uncertainties, including inflation, foreign government regulations, trade restrictions, including the United States
retaliating against protectionist foreign trade practices and political unrest, increased labor costs and other similar
factors that might affect the operations of our vendors in specific countries such as China.
An interruption or delay in supply from our foreign sources, or the imposition of additional duties, taxes or
other charges on these imports, could have a material adverse effect on our business, financial condition and
results of operations unless and until alternative supply arrangements are secured.
In addition, there is a risk that compliance lapses by our vendors could occur which could lead to
investigations by U.S. government agencies responsible for international trade compliance. Resulting penalties or
enforcement actions could delay future imports/exports or otherwise negatively impact our business. In addition,
there remains a risk that one or more of our foreign vendors will not adhere to applicable legal requirements or
our global compliance standards such as fair labor standards, the prohibition on child labor and other product
safety or manufacturing safety standards. The violation of applicable legal requirements by any of our vendors or
the failure to adhere to labor, manufacturing safety and other laws by any of our vendors, or the divergence of the
labor practices followed by any of our vendors from those generally accepted in the United States, could disrupt
our supply of products from our vendors or the shipment of products to us, result in potential liability to us and
harm our reputation and brand and subject us to boycotts by our customers or activist groups, any of which could
negatively affect our business and operating results.
We extend unsecured credit to our vendors.
Some of our vendors have limited cash flows and/or access to capital and require us to advance payments in
order for them to be able to meet our supply requirements. We typically advance a portion of the payments to be
made to such vendors under our purchase orders prior to the delivery of the ordered products. These advance
payments are unsecured. These vendors may become insolvent and their failure to repay our advances, and any
related failure to deliver products to us, could have a material adverse impact on our results of operations.
We rely upon independent third-party transportation providers for the majority of our product shipments.
We currently rely upon independent third-party transportation providers for our product shipments to our
stores and to our customers outside of certain areas. Our utilization of their delivery services for shipments, or
those of any other shipping companies we may elect to use, is subject to risks, including increases in fuel prices,
which would increase our shipping costs, and strikes, work stoppages and inclement weather, which may impact
the shipping companies’ abilities to provide delivery services that adequately meet our shipping needs. If we
change shipping companies, we could face logistical difficulties that could adversely affect deliveries and we
would incur costs and expend resources in connection with such change. Moreover, we may not be able to obtain
terms as favorable as those received from the third-party transportation providers we currently use, which in turn
would increase our costs.
We may be exposed to risks and costs associated with protecting the integrity and security of our customers’
information.
A significant number of customer purchases from us across all of our channels are made using credit cards.
Additionally, a significant number of our customer orders are placed through our websites. In order for our
business to function successfully, we and other market participants must be able to handle and transmit
confidential information, including credit card information, securely. We are not fully compliant with Payment
Card Industry, or PCI, Data Security Standards and there can be no assurance that in the future we will be able to
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