Restoration Hardware 2015 Annual Report Download - page 14

11
We recently introduced the RH Grey Card program, which provides a range of benefits to our customers in return for payment
of an annual membership fee. We have introduced the RH Grey Card in order to move our primary business away from its traditional
reliance on promotions and discounts. The RH Grey Card program is new to our business and has not been tested prior to its
introduction. This program may not achieve market acceptance or may result in a loss of sales due to our elimination or changes to our
other promotions and discounts.
Developing and testing new and multiple business opportunities and strategies often requires knowledge in areas of expertise
that may be new to our organization and may require significant time of our management and resources. Such new business
opportunities may not achieve market acceptance or may only achieve market acceptance in limited geographic areas or at certain
Design Galleries. Further, these new business opportunities may generate sufficient revenue 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 also 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. Additionally, 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 due to various factors including 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 or all such business initiatives, which could have a material adverse effect on our results of operations.
Changes in consumer spending and factors that influence spending of the specific consumers we target, including the health of the
high-end housing market, may significantly impact our revenue and results of operations.
We target consumers of high-end home furnishings as customers for our products. As a result, we believe that our sales are
sensitive to a number of factors that influence consumer spending generally, but are particularly affected by the health of the higher
end customer and demand levels from that customer demographic. In addition, not all macroeconomic factors are highly correlated in
their impact on lower end housing versus the higher end customer. Demand for lower priced homes and first time home buying may
be influenced by factors such as employment levels, interest rates, demographics of new household formation and the affordability of
homes for the first time home buyer. The higher end of the housing market may be disproportionately influenced by other factors
including the number of foreign buyers in higher end real estate markets in the U.S., the number of second and third homes being sold,
stock market prices and the perceived prospect for capital appreciation in higher end real estate. Although employment levels in the
U.S. were reasonably strong at the beginning of 2016, there can be no assurance that some of the other macroeconomic factors
described above will not adversely affect the higher end consumer that we believe makes up the bulk of our customer demand.
We believe that a number of these factors have in the past had, and may in the future have, an adverse impact on the high-end
retail home furnishings sector, and have also affected our business and results. These factors may make it difficult for us to accurately
predict our operating and financial results for future periods and some of these factors could contribute to a material adverse effect on
our business and results of operations.
If we are unable 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.
Our business depends in part on a strong brand image, and we continue to invest in the development of our brand and the
marketing of our business. 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 the future of 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, including our food and beverage operations at the 3 Arts Club Café in the RH Gallery in Chicago, and
Ma(i)sonry in Yountville, California, fail to maintain or enhance our distinctive brand image.