Rue 21 2010 Annual Report Download - page 26

We only have one distribution facility and have not yet implemented disaster recovery procedures, and if
we encounter difficulties associated with our distribution facility or if it were to shut down for any reason,
we could face shortages of inventory that would have a material adverse affect on our business operations
and harm our reputation.
Our only distribution facility is located in Weirton, West Virginia. Our distribution facility supports our entire
business. All of our merchandise is shipped to the distribution facility from our vendors, and then packaged and
shipped from our distribution facility to our stores. The success of our stores depends on their timely receipt of
merchandise. The efficient flow of our merchandise requires that we have adequate capacity in our distribution
facility to support our current level of operations, and the anticipated increased levels that may follow from our
growth plans. If we encounter difficulties associated with our distribution facility or if it were to shut down for any
reason, including by fire, natural disaster, or a prolonged shutdown, we could face shortages of inventory, resulting
in “out-of-stock” conditions in our stores, and incur significantly higher costs and longer lead times associated with
distributing merchandise to our stores. This could have a material adverse effect on our business and harm our
reputation. We are in the process of developing disaster recovery and business continuity plans that would allow us
to be fully operational regardless of casualties or unforeseen events that may affect our corporate headquarters or
distribution center. Without proper disaster recovery and business continuity plans, if we encounter difficulties with
our distribution facility or other problems or disasters arise, we cannot ensure that critical systems and operations
will be restored in a timely manner or at all and this would have a material adverse effect on our business.
Although we recently implemented upgrades of our distribution facility’s packing operations, we intend to
expand the footprint of our existing distribution facility in 2011 to support our storage growth needs. We will need to
continue to evaluate the ability of a single facility to support our growing business operations which may require us
to secure additional favorable real estate or may require us to obtain additional financing. Appropriate locations or
financing for the purchase or lease of such additional real estate may not be available at reasonable costs or at all.
Our failure to provide adequate order fulfillment and secure additional distribution capacity when necessary could
impede our growth plans, and the further increase of this capacity would increase our costs.
We rely upon independent third-party transportation providers for substantially all of our product
shipments.
We currently rely upon independent third-party transportation providers for substantially all of our product
shipments, including shipments to all of our stores. Our utilization of their delivery services for shipments, or those
of any other shipping companies we may elect to use, is subject to risks, including increases in fuel prices, which
would increase our shipping costs, and employee strikes and inclement weather, which may impact the shipping
company’s abilities to provide delivery services that adequately meet our shipping needs. If we change shipping
companies, we could face logistical difficulties that could adversely affect deliveries and we would incur costs and
expend resources in connection with such change. Moreover, we may not be able to obtain terms as favorable as
those received from the independent third-party transportation providers we currently use, which in turn would
increase our costs. We also face shipping and distribution risks and uncertainties associated with the upgrade of our
distribution facility and related systems.
Our ability to source our merchandise profitably or at all could be hurt if new trade restrictions are
imposed or existing trade restrictions become more burdensome.
Trade restrictions, including increased tariffs, safeguards or quotas, on apparel and accessories could increase
the cost or reduce the supply of merchandise available to us. Under the World Trade Organization, or WTO,
Agreement, effective January 1, 2005, the United States and other WTO member countries removed quotas on
goods from WTO members, which in certain instances affords us greater flexibility in importing textile and apparel
products from WTO countries from which we source our merchandise. However, as the removal of quotas resulted
in an import surge from China, the United States in May 2005 imposed safeguard quotas on seven categories of
goods and apparel imported from China. Effective January 1, 2006, the United States imposed quotas on
approximately twelve categories of goods and apparel from China, and may impose additional quotas in the
future. These and other trade restrictions could have a significant impact on our sourcing patterns in the future. The
extent of this impact, if any, and the possible effect on our purchasing patterns and costs, cannot be determined at
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