Rue 21 2010 Annual Report Download - page 23

Our plans to expand our store base may not be successful and the implementation of these plans may not result in
expected increases in our net sales even though they increase our costs.
To support our expanding business and execute our growth strategy, we will need significant amounts of cash
from operations, including funds to pay our lease obligations, build out new store space, purchase inventory, pay
personnel, further invest in our infrastructure and facilities, and pay for the increased costs associated with operating
as a public company. In particular, payments under the operating leases associated with our stores and our
distribution facility account for a significant portion of our operating expenses.
We primarily depend on cash flow from operations and our senior secured credit facility to fund our business
and growth plans. If our business does not generate sufficient cash flow from operations to fund these activities or
we experience working capital leverage deterioration, and sufficient funds are not otherwise available to us under
our senior secured credit facility, we may need additional equity or debt financing. If such financing is not available
to us on satisfactory terms, our ability to run and expand our business or to respond to competitive pressures would
be limited and we could be required to delay, significantly curtail or eliminate planned store openings or operations
or other elements of our growth strategy.
We have many important vendor relationships and our ability to obtain merchandise at competitive prices
could suffer as a result of any deterioration or change in those relationships or events that adversely
affect our vendors or their ability to obtain financing for their operations.
We have many important vendor relationships that we believe provide us with a competitive advantage. We do
not own or operate any manufacturing facilities. We instead purchase all of our merchandise from third-party
vendors. Over the last twelve months, we sourced a majority of our merchandise from our various merchandise
vendors, with no single vendor accounting for more than 7% of our merchandise. Our financial performance
depends in large part on our ability to purchase desired merchandise in sufficient quantities at competitive prices
from these and other vendors. In some cases, we obtain exclusive use of select products from our vendors for a
period of time. Moreover, from time to time, some of our vendors allow us to return certain merchandise purchased
from them with their prior consent. We are also typically able to return merchandise that does not meet our preset
specifications. However, we generally have no long-term purchase contracts or other contractual assurances of
continued supply, pricing or access to new products. Any of our vendors could discontinue supplying us with
desired products in sufficient quantities for a variety of reasons. The benefits we currently experience from our
vendor relationships could be adversely affected if our vendors:
• choose to discontinue selling non-exclusive or exclusive products to us;
• refuse to allow us to return merchandise purchased from them;
• raise the prices they charge us;
• sell similar or identical products to certain of our competitors, many of whom purchase products in
significantly greater volume and, in some cases, at lower prices than we do;
• enter into arrangements with competitors that could impair our ability to sell their products, including by
giving our competitors exclusive licensing arrangements or exclusive access to styles, brands and products
or limiting our access to such arrangements or styles, brands or products;
• initiate or expand sales of their products through their own stores or through the Internet to the retail market
and therefore compete with us directly; or
• sell their products through outlet centers or discount stores, increasing the competitive pricing pressure we
face.
Continued challenging macroeconomic conditions and rising raw material costs, such as the price of cotton,
could negatively impact our vendors, which, in turn, could have an adverse impact on our business. Some of our
vendors are small and specialized with limited resources, production capacities and operating histories. Rising costs
of raw materials, fuel, or labor shortages could cause our vendors to slow or cease shipments or require or condition
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