Restoration Hardware 2012 Annual Report Download - page 90

products, license rights from third parties or cease using those rights altogether, which could have a material
adverse impact on our business, financial condition or results of operations.
We currently rely on a combination of copyright, trademark, trade dress and unfair competition laws, as
well as confidentiality procedures and licensing arrangements, to establish and protect our intellectual property
rights. We believe that our trademarks and other proprietary rights have significant value and are important to
identifying and differentiating certain of our products and brand from those of our competitors and creating and
sustaining demand for certain of our products. We also cannot assure you that the steps taken by us to protect our
intellectual property rights will be adequate to prevent infringement of such rights by others, including imitation
of our products and misappropriation of our brand. If we are unable to protect and maintain our intellectual
property rights, the value of our brand could be diminished and our competitive position could suffer.
We are subject to risks associated with occupying substantial amounts of space, including future increases in
occupancy costs. We may choose in the future to acquire some of our store locations, which will subject us to
additional risks.
We lease all but one of our retail store locations and we also lease our outlet stores, our corporate headquarters
and our seven distribution and delivery facilities. The initial lease term of our retail stores generally ranges from ten
to fifteen years, and certain leases contain renewal options for up to fifteen years. Most leases for our retail stores
provide for a minimum rent, typically including escalating rent increases, plus a percentage rent based upon sales
after certain minimum thresholds are achieved, as well as common area maintenance charges, real property
insurance and real estate taxes. We purchased the building and land for our store in San Francisco, but to date we
have relied upon leases with landlords for our other locations. As we develop new stores in the future, we may
explore other models for our real estate which could include joint ventures or other forms of equity ownership in the
real estate interests associated with new sites and buildings. These approaches might require additional capital
investment and could present different risks than a traditional store lease with a landlord, including greater financial
exposure if a new store location is not as successful as we originally target in our plans.
If we decide to close an existing or future store, we may nonetheless have continuing obligations with
respect to that property pursuant to the applicable lease or ownership arrangements, including, among other
things, paying the base rent for the balance of the lease term. Our ability to re-negotiate favorable terms on an
expiring lease, to arrange for the sale of an owned property or to negotiate favorable terms for a suitable alternate
location could depend on conditions in the real estate market, competition for desirable properties, our
relationships with current and prospective landlords and other factors that are not within our control. Our
inability to enter into new leases or renew existing leases on terms acceptable to us or be released from our
obligations under leases or other obligations for stores that we close could materially adversely affect our
business and results of operations.
Compliance with laws may be costly, and changes in laws could make conducting our business more
expensive or otherwise change the way we do business.
We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising,
consumer protection, privacy, safety, environmental and zoning and occupancy laws and other laws, including
consumer protection regulations that regulate retailers generally or govern our business. If these regulations were
to change or were violated by us or our vendors or buying agents, the costs of certain goods could increase, or we
could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm,
which could reduce demand for our products and harm our business and results of operations.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct of
our business more expensive or require us to change the way we do business. For example, as a retail business,
changes in laws related to employee benefits and treatment of employees, including laws related to limitations on
employee hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could negatively
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