Restoration Hardware 2014 Annual Report Download - page 24

In January 2012, we opened a furniture home delivery hub in Avenel, New Jersey and, in February 2012, we
opened a furniture distribution center in North East, Maryland. Further, we expanded into an additional 400,000
square feet at our West Jefferson, Ohio distribution center in May 2013, opened a furniture distribution center in
Grand Prairie, Texas in September 2013 and in-sourced three home furniture delivery facilities in 2013. During
fiscal 2014, we in-sourced two additional home furniture delivery facilities in Atlanta, Georgia and Carmel, New
York. As a result of these and other efforts with respect to our distribution facilities, we may encounter
operational difficulties with respect to our facilities, such as disruptions in transitioning fulfillment orders to the
new distribution facilities and problems associated with operating new facilities or reducing the size and
changing functions of existing facilities, and any such difficulties could have a material adverse effect on our
business, financial condition and results of operations.
Our results may be adversely affected by fluctuations in raw materials and energy costs.
Increases in the prices of the components and raw materials used in our products could negatively affect the
sales of our merchandise and our product margins. These prices may fluctuate based on a number of factors
beyond our control, including: commodity prices including prices for oil, lumber and cotton, changes in supply
and demand, general economic conditions, labor costs, competition, import duties, tariffs, anti-dumping duties,
currency exchange rates and government regulation. In addition, energy costs have fluctuated dramatically in the
past. These fluctuations may result in an increase in our transportation costs for freight and distribution, utility
costs for our retail stores and overall costs to purchase products from our vendors. Accordingly, changes in the
value of the U.S. dollar relative to foreign currencies may increase our vendors’ cost of business and ultimately
our cost of goods sold and our selling, general and administrative costs. If we are unable to pass such cost
increases on to our customers or the higher cost of the products results in decreased demand for our products, our
results of operations would be harmed. Any such cost increase could reduce our earnings to the extent we are
unable to adjust the prices of our products.
We are subject to risks associated with our dependence on foreign imports for our merchandise.
Based on total volume dollar purchases, in fiscal 2014 we sourced approximately 90% of our merchandise
outside the United States, including 84% from Asia, the majority of which originated from China. In addition,
some of the merchandise we purchase from vendors in the United States also depends, in whole or in part, on
vendors located outside the United States. As a result, our business highly depends on global trade, as well as
trade and cost factors that impact the specific countries where our vendors are located, including Asia. Our future
success will depend in large part upon our ability to maintain our existing foreign vendor relationships and to
develop new ones. While we rely on our long-term relationships with our foreign vendors, we have no long-term
contracts with them and transact business on an order by order basis. Additionally, many of our imported
products are subject to existing duties, tariffs, anti-dumping duties and quotas that may limit the quantity of some
types of goods which we may import into the United States. Our dependence on foreign imports also makes us
vulnerable to risks associated with products manufactured abroad, including, among other things, risks of
damage, destruction or confiscation of products while in transit to our distribution centers located in the
United States, charges on or assessment of additional import duties, tariffs, anti-dumping duties and quotas, loss
of “most favored nation” trading status by the United States in relation to a particular foreign country, work
stoppages, including without limitation as a result of events such as longshoremen strikes, transportation and
other delays in shipments, including without limitation as a result of heightened security screening and inspection
processes or other port-of-entry limitations or restrictions in the United States, freight cost increases, economic
uncertainties, including inflation, foreign government regulations, trade restrictions, including the United States
retaliating against protectionist foreign trade practices and political unrest, increased labor costs and other similar
factors that might affect the operations of our vendors in specific countries such as China.
An interruption or delay in supply from our foreign sources, or the imposition of additional duties, taxes or
other charges on these imports, could have a material adverse effect on our business, financial condition and
results of operations unless and until alternative supply arrangements are secured.
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