Restoration Hardware 2015 Annual Report Download - page 15

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Additionally, our reputation could be jeopardized if we fail to maintain high standards for merchandise and service quality. With
the growth in importance and the impact of social media over the last few years, any negative publicity from product defects or
failures in service may be magnified and reach a large portion of our customer base in a very short period of time, which could harm
the value of our brand and, consequently, our financial performance could suffer. We may also suffer reputational harm if we fail to
maintain high ethical, social and environmental standards for all of our operations and activities, if we fail to comply with local laws
and regulations or if we experience other negative events that affect our image or reputation. Any failure to maintain a strong brand
image could have an adverse effect on our sales and results of operations.
Our failure to successfully manage the strategy and costs of our Source Book mailings or other promotional programs and costs
could have a negative impact on our business.
Source Book 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 fiscal 2013, we continued expanding the page counts of our Source
Books, and in the same year, we also reduced the frequency of Source Books circulated to one mailing per year. In fiscal 2014 and
fiscal 2015, we reduced the number of Source Books circulated. We intend to continue adjusting our Source Book circulation 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. Additionally, due to the size of our Source Books
we have in the past received negative publicity from environmental groups. 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 also 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, and we are subject to fluctuations in the market price for paper, which has historically
fluctuated significantly 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 results of operations to the extent that we are unable to offset such increases through increased
sales or by raising prices, by implementing more efficient printing, mailing, delivery and order fulfillment systems, or by using
alternative direct-mail formats.
We have historically experienced fluctuations in customer response to our Source Books. Customer response depends
substantially on product assortment, product availability and creative presentation, the selection of customers to whom the catalogs are
mailed, changes in mailing strategies, page size, page count, frequency and timing of delivery of catalogs, as well as the general retail
sales environment and current domestic and global economic conditions. The failure to effectively produce or distribute our catalogs
could affect the timing of catalog delivery. The timing of catalog delivery has also been and can be affected by shipping service
delays. Any delays in the timing of catalog delivery could cause customers to forgo or defer purchases. If the performance of our
catalogs declines, if we misjudge the correlation between our catalog circulation and net revenues, or if our catalog circulation
optimization strategy is not successful, our results of operations could be negatively impacted.
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 catalogs and online retailers focused on home furnishings.
We compete generally with these other retailers for customers, suitable retail locations, vendors, qualified employees and
management personnel. As we have traditionally been a leader in the home furnishings sector, some of our competitors have also
attempted to imitate our product offerings and business initiatives from time to time in the past. However, many of our competitors
have significantly greater financial, marketing and other resources than we do and therefore may be able to 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, such competitors may also be able to adapt to changes in customer preferences more quickly than we can due to their
greater financial or marketing resources. Further, increased catalog mailings by our competitors may adversely affect response rates to
our own Source Book mailings. There can be no assurance that such competitors will not be more successful than us, based on
imitation or otherwise, or that we will be able to continue to maintain a leadership position in style and innovation in the future.
Increased competition also has resulted, and may in the future result, in potential or actual litigation between us and our
competitors related to a variety of activities, including hiring practices. If we are not successful in such litigation, our business could
be harmed.