Restoration Hardware 2014 Annual Report Download - page 21

Our business depends in part on a strong brand image. We continue to invest in the development of our brand
and the marketing of our business, and if we are not able to maintain and enhance our brand or market our
product offerings, we may be unable to attract a sufficient number of customers or sell sufficient quantities of
our products.
We believe that the brand image we have developed, and the lifestyle image associated with our brand, have
contributed significantly to the success of our business to date. We also believe that maintaining and enhancing
our brand is integral to our business and to the implementation of our strategies for expanding our business. This
will require us to continue to make investments in areas such as marketing and advertising, as well as the day-to-
day investments required for store operations, Source Book mailings, website operations and employee training.
Our brand image may be diminished if new products, services or other businesses fail to maintain or enhance our
distinctive brand image. Furthermore, our reputation could be jeopardized if we fail to maintain high standards
for merchandise and service quality, if we fail to maintain high ethical, social and environmental standards for all
of our operations and activities, if we fail to comply with local laws and regulations or if we experience other
negative events that affect our image or reputation. Any failure to maintain a strong brand image could have an
adverse effect on our sales and results of operations.
We are exploring opportunities to expand into new categories or complementary businesses. If we are not
successful in these new categories or business areas, it may have an adverse effect on our results of operations
and our reputation.
We are engaged in ongoing efforts to explore new business opportunities that we believe can leverage our
current business platform. We have developed a number of new product categories and extensions over the last
several years, including Contemporary Art, Outdoor & Garden, Baby & Child and Small Spaces. We also have
introduced other merchandise categories that enhance the customer experience in our Galleries, including fresh
cut flowers, magazines and tea and a wine bar. We plan further brand-enhancing offerings, such as a café or
restaurant adjacent to, or inside of, select next generation Galleries. We are incubating a number of other new
ideas for potential expansion of our business, some of which may become new core categories or new store
concepts and others of which may be primarily offered as enrichment of the customer experience.
Developing and testing new business opportunities will involve us in business operations and areas of
expertise that would be new to our organization and may require management time and resources. We may not
achieve wide market acceptance or generate revenue sufficient to recoup the cost of developing and operating
such new concepts, which in turn could have a material adverse effect on our results of operations. Any new
businesses we enter may expose us to additional laws, regulations and risks, including the risk that we may incur
ongoing operating expenses in such businesses in excess of revenues, which could harm our results of operations
and financial condition. The financial profile of any such new businesses may be different than our current
financial profile, which could affect our financial performance and the market price for our common stock.
We are undertaking a large number of business initiatives at the same time and if these new initiatives are not
successful, they may have a negative impact on our operating results.
We are experiencing rapid growth and undertaking a large number of new business initiatives. For example,
we have developed and continue to refine and enhance our Gallery format which involves larger store square
footage. We plan to continue to open larger format Galleries in select major metropolitan markets and we expect
to close a number of our older stores and replace them with the next generation Gallery format. We also continue
to add new product categories and to expand product assortments. For example, we introduced our new
Tableware category in Spring 2013. We are currently contemplating other new product lines and extensions and
complementary brand-enhancing businesses, as well as expanding sales to international markets. In addition, we
are continuing a number of new initiatives in other areas of our business, including product sourcing and
distribution and management information systems. For example, we have reduced the use of third-party buying
agents in most foreign locations. Further, our Source Book strategy continues to evolve. We may incur costs for
these new initiatives before we realize any corresponding revenue.
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