Restoration Hardware 2014 Annual Report Download - page 16

range of consumers whose preferences cannot always be predicted with certainty. We cannot assure you that we
will be able to continue to develop products that customers positively respond to or that we will successfully
meet consumer demands in the future. Any failure on our part to anticipate, identify or respond effectively to
consumer preferences and demand could adversely affect sales of our products. If this occurs, our sales may
decline significantly, and we may be required to mark down certain products to sell the resulting excess
inventory or to sell such inventory through our outlet stores, either of which could have a material adverse effect
on our financial condition and results of operations.
In addition, we must manage our merchandise in stock and inventory levels to track consumer demand.
Much of our merchandise requires that we provide vendors with significant ordering lead time, frequently before
market factors are known. In addition, the seasonal nature of some of our products requires us to carry a
significant amount of inventory prior to certain selling seasons. If we are not able to anticipate consumer demand
for our different product offerings, or successfully manage inventory levels for products that are in demand, we
may experience:
• back orders, order cancellations and lost sales for products that are in high demand for which we did
not stock adequate inventory; and
• overstock inventory levels for products that have lower consumer demand, requiring us to take
markdowns or other steps to sell slower-moving merchandise.
As a result of these and other factors, we are vulnerable to demand and pricing shifts and to misjudgments in the
selection and timing of merchandise purchases.
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. We believe that the housing market has been experiencing a recovery after a
prolonged downtrend, and rising levels of home purchases and remodelings, in turn, have increased 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.
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
12