Restoration Hardware 2014 Annual Report Download - page 22

The number of current business initiatives could strain our financial, operational and management resources.
In addition, these initiatives may not be successful. If we are not successful in managing our current growth and
the large number of new initiatives that are underway, we might experience an adverse impact on our financial
performance and results of operations. All of the foregoing risks may be compounded in any economic downturn.
If we fail to achieve the intended results of our current business initiatives, or if the implementation of these
initiatives is delayed or abandoned, diverts management’s attention or resources from other aspects of our
business or costs more than anticipated, we may experience inadequate return on investment for some of our
business initiatives, which would have a negative effect on our operating results.
In 2013, Gary Friedman was re-appointed as our Chairman and Chief Executive Officer. There can be no
assurance that this transition will not have an adverse impact on us.
Effective July 2, 2013, Gary Friedman was appointed to serve as our Co-Chief Executive Officer along with
Carlos Alberini, and Mr. Friedman is now serving as our Chief Executive Officer. Mr. Friedman also serves as
Chairman of our Board of Directors. Mr. Friedman previously served as Chairman and as Co-Chief Executive
Officer with Mr. Alberini from June 2010 through October 2012. Prior to June 2010, Mr. Friedman was our
Chief Executive Officer and Chairman. In October 2012, Mr. Friedman resigned as Co-Chief Executive Officer
and as a director and agreed to serve in an advisory capacity as our Creator and Curator following an
investigation by a special committee of non-management directors of the board assisted by independent counsel
prompted by disclosure that Mr. Friedman and a Company employee were engaged in a personal relationship,
described by the parties as consensual. The investigation concluded that Mr. Friedman engaged in activities that
were inconsistent with the board of directors’ expectations for executive conduct as previously communicated by
the board of directors and failed to comply with certain Company policies. We incurred $4.8 million of expenses
related to the investigation in fiscal 2012. There can be no assurance that we will not incur expenses or claims in
the future related to the conduct that was the subject of the investigation or similar conduct that has occurred in
the past or, given Mr. Friedman’s continued involvement with the Company, may occur in the future.
Competition in the home furnishings sector of the retail market may adversely affect our future financial
performance.
The home furnishings sector within the retail market is highly competitive. We compete with the interior
design trade and specialty stores, as well as antique dealers and other merchants that provide unique items and
custom-designed product offerings at higher price points. We also compete with national and regional home
furnishing retailers and department stores. In addition, we compete with mail order Source Books and online
retailers focused on home furnishings. We compete with these and other retailers for customers, suitable retail
locations, vendors, qualified employees and management personnel. Many of our competitors have significantly
greater financial, marketing and other resources than we do and therefore may be able to adapt to changes in
customer preferences more quickly, devote greater resources to the marketing and sale of their products, generate
greater national brand recognition or adopt more aggressive pricing policies than we can. In addition, increased
Source Book mailings by our competitors may adversely affect response rates to our own Source Book mailings.
Moreover, increased competition may result, and has resulted in the past, in potential or actual litigation between
us and our competitors relating to such activities as competitive sales, hiring practices and other matters. As a
result, increased competition may adversely affect our future financial performance, and we cannot assure you
that we will be able to compete successfully in the future.
We believe that our ability to compete successfully is determined by several factors, including, among other
things, the quality of our product selection, our brand, our merchandise presentation and value proposition,
customer service, pricing and store locations. We may not ultimately succeed in competing with other retailers in
our market.
18