Restoration Hardware 2014 Annual Report Download - page 30

sustaining demand for certain of our products. We also cannot assure you that the steps taken by us to protect our
intellectual property rights will be adequate to prevent infringement of such rights by others, including imitation
of our products and misappropriation of our brand. If we are unable to protect and maintain our intellectual
property rights, the value of our brand could be diminished and our competitive position could suffer.
We are subject to risks associated with occupying substantial amounts of space, including future increases in
occupancy costs. We may choose in the future to acquire some of our store locations, which will subject us to
additional risks.
We lease all but one of our retail store locations and we also lease our outlet stores, our corporate
headquarters and our thirteen distribution and home delivery facilities. The initial lease term of our retail stores
generally ranges from ten to fifteen years, and certain leases contain renewal options for up to fifteen years. Most
leases for our retail stores provide for a minimum rent, typically including escalating rent increases, plus a
percentage rent based upon sales after certain minimum thresholds are achieved, as well as common area
maintenance charges, real property insurance and real estate taxes. We purchased the building and land for our
store in San Francisco, but to date we have principally relied upon leases with landlords for our other locations.
As we develop new stores in the future, we may explore other models for our real estate which could include
joint ventures or other forms of equity ownership in the real estate interests associated with new sites and
buildings. These approaches might require additional capital investment and could present different risks than a
traditional store lease with a landlord, including greater financial exposure if a new store location is not as
successful as we originally target in our plans.
If we decide to close an existing or future store, we may nonetheless have continuing obligations with
respect to that property pursuant to the applicable lease or ownership arrangements, including, among other
things, paying the base rent for the balance of the lease term. Our ability to re-negotiate favorable terms on an
expiring lease, to arrange for the sale of an owned property or to negotiate favorable terms for a suitable alternate
location could depend on conditions in the real estate market, competition for desirable properties, our
relationships with current and prospective landlords and other factors that are not within our control. Our
inability to enter into new leases or renew existing leases on terms acceptable to us or be released from our
obligations under leases or other obligations for stores that we close could materially adversely affect our
business and results of operations.
Compliance with laws may be costly, and changes in laws could make conducting our business more
expensive or otherwise change the way we do business.
We are subject to numerous regulations, including labor and employment, customs, truth-in-advertising,
consumer protection, e-commerce, privacy, safety, real estate, environmental and zoning and occupancy laws,
and other laws and regulations that regulate retailers generally or govern our business. If these regulations were
to change or were violated by us or our vendors or buying agents, the costs of certain goods could increase, or we
could experience delays in shipments of our goods, be subject to fines or penalties, or suffer reputational harm,
which could reduce demand for our products and harm our business and results of operations.
In addition to increased regulatory compliance requirements, changes in laws could make ordinary conduct
of our business more expensive or require us to change the way we do business. For example, as a retail business,
changes in laws related to employee benefits and treatment of employees, including laws related to limitations on
employee hours, supervisory status, leaves of absence, mandated health benefits or overtime pay, could
negatively impact us by increasing compensation and benefits costs for overtime and medical expenses. In
addition, relatively new United States health care laws and potential global and domestic greenhouse gas
emission requirements and other environmental legislation and regulations could result in increased direct
compliance costs for us (or may cause our vendors to raise the prices they charge us in order to maintain
profitable operations because of increased compliance costs), increased transportation costs or reduced
availability of raw materials.
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