Restoration Hardware 2014 Annual Report Download - page 17

have limited resources, production capacities and operating histories. As a result, the capacity of some of our
vendors to meet our supply requirements has been, and may in the future be, constrained at various times and our
vendors may be susceptible to production difficulties or other factors that negatively affect the quantity or quality
of their production during future periods. A disruption in the ability of our significant vendors to access liquidity
could also cause serious disruptions or an overall deterioration of their businesses, which could lead to a
significant reduction in their ability to manufacture or ship products to us.
Any difficulties that we experience in our ability to obtain products in sufficient quality and quantity from
our vendors could have a material adverse effect on our business. In fiscal 2014, we sourced approximately 90%
of our merchandise abroad. Our ability to obtain desired merchandise in sufficient quantities could be impaired
by events that adversely affect our vendors or the locations in which they operate, such as difficulties or
problems associated with our vendors’ operations, business, finances, labor, economic and political environment
(including the impact of war, rebellion or any other conflicts), importation of products, costs, production,
insurance and reputation. Failure of vendors to produce adequate quantities of merchandise in a timely manner
has resulted in back orders, order cancelations, increased freight costs and lower revenue in certain periods of our
business operation. While we believe our vendors have the capacity to meet our demand, we cannot assure you
that our vendors will be able to produce adequate quantities of merchandise in a timely manner in the future.
We also do not have long-term contracts or other contractual assurances of continued supply, pricing or
access to new products with our vendors, and generally we transact business with our vendors on an order-by-
order basis. Therefore, any vendor could discontinue selling to us at any time. 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 may not be able to locate and develop relationships with a sufficient number of new vendors, which could
lead to product shortages and customer backorders, which could harm our business.
In the event that one or more of our vendors is unable to meet the quantity or quality of our product
requirements, we may not be able to develop relationships with new vendors in a manner that is sufficient to
supply the shortfall. Even if we do identify such new vendors, we may experience product shortages and
customer backorders as we transition our product requirements to incorporate the alternative suppliers. In
addition, we cannot assure you that any new vendor with which we do business, particularly any new vendor
abroad, would not be subject to the same or similar quality and quantity risks as our existing suppliers.
We do not have exclusive relationships with most of our vendors, and there is a risk that our vendors may sell
similar or identical products to our competitors, which could harm our business.
Our arrangements with our vendors are generally not exclusive. As a result, most of our vendors might be
able to sell similar or identical products to certain of our competitors, some of which purchase products in
significantly greater volume. Our competitors may enter into arrangements with suppliers that could impair our
ability to sell those suppliers’ products, including by requiring suppliers to enter into exclusive arrangements,
which could limit our access to such arrangements or products. Our vendors could also initiate or expand sales of
their products through their own stores or through the Internet to the retail market and therefore compete with us
directly or sell their products through outlet centers or discount stores, increasing the competitive pricing
pressure we face.
Defective merchandise purchased from our vendors could damage our reputation and brand image and harm
our business, and we may not have adequate remedies against our vendors for defective merchandise.
If products that we purchase from vendors are damaged or prove to be defective, we may not be able to
return products to these vendors and obtain refunds of our purchase price or obtain other indemnification from
them. Our vendors’ limited capacities may result in a vendor’s inability to replace any defective merchandise in a
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