Restoration Hardware 2014 Annual Report Download - page 27

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Material damage to, or interruptions in, our information systems as a result of external factors, staffing
shortages and difficulties in updating our existing software or developing or implementing new software could
have a material adverse effect on our business or results of operations.
We depend largely upon our information technology systems in the conduct of all aspects of our operations,
many of which we have only adopted and implemented within the past several years in connection with
rebuilding our supply chain and infrastructure. Such systems are subject to damage or interruption from power
outages, computer and telecommunications failures, computer viruses, security breaches and natural disasters.
Damage or interruption to our information systems may require a significant investment to fix or replace them,
and we may suffer interruptions in our operations in the interim. Management information system failures or
telecommunications system problems may disrupt operations. In addition, costs and potential problems and
interruptions associated with the implementation of new or upgraded systems and technology or with
maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our
operations. Any material interruptions or failures in our systems may have a material adverse effect on our
business or results of operations.
We also rely heavily on our information technology staff. If we cannot meet our staffing needs in this area,
we may not be able to fulfill our technology initiatives while continuing to provide maintenance on existing
systems.
We rely on certain software vendors to maintain and periodically upgrade many of these systems so that
they can continue to support our business. The software programs supporting many of our systems were licensed
to us by independent software developers. The inability of these developers or us to continue to maintain and
upgrade these information systems and software programs would disrupt or reduce the efficiency of our
operations if we were unable to convert to alternate systems in an efficient and timely manner.
We are vulnerable to various risks and uncertainties associated with our websites, including changes in
required technology interfaces, website downtime and other technical failures, costs and technical issues as we
upgrade our website software, computer viruses, changes in applicable federal and state regulation, security
breaches, legal claims related to our website operations and e-commerce fulfillment and other consumer privacy
concerns. Our failure to successfully respond to these risks and uncertainties could reduce website sales and have
a material adverse effect on our business or results of operations.
Our failure to successfully manage the strategy and costs of our catalog and promotional mailings could have
a negative impact on our business.
Catalog mailings are an important component of our business. We continue to adjust and refine our Source
Book mailing strategy and we expect to do so in the future. For example, in 2013, we continued expanding the
page counts of our catalogs, and in the same year, we also reduced the frequency of Source Books circulated to
one mailing per year. We intend to continue adjusting our catalog strategy based on a variety of factors, including
the success of the various changes that we adopt. We can provide no assurances as to the success of any Source
Book strategy we pursue. Increased expenditures on our catalog strategy may result in the production of too
many Source Books, which could negatively affect our operating margins. Reducing expenditures on our catalog
strategy, however, could overly restrict catalog circulation and have a negative effect on our revenues. If we fail
to adequately adjust our catalog strategy to meet our goals, or if our catalog strategy is unsuccessful, our results
of operations could be negatively impacted. We rely on customary discounts from the basic shipping rate
structure that are available for our catalog mailings, which could be changed or discontinued at any time. The
market price for paper has fluctuated significantly during the past three fiscal years and may continue to fluctuate
in the future. Future increases in shipping rates, paper costs or printing costs would have a negative impact on
our operating results to the extent that we are unable to offset such increases by raising prices, by implementing
more efficient printing, mailing, delivery and order fulfillment systems or by using alternative direct-mail
formats.
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