Rue 21 2011 Annual Report Download - page 21

In addition, we may experience variability in net sales as a result of a variety of other factors, including the timing
of new store openings, store events, promotions or other marketing activities, which may cause our results of
operations to fluctuate on a quarterly basis and relative to corresponding periods in prior years.
A significant disruption to our distribution network or to the timely receipt of inventory could adversely impact
sales or increase our transportation costs, which would decrease our profits.
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 and fulfillment 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. In addition, 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 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 rely heavily on information technology systems and any failure, inadequacy, or interruption of those
systems could harm our ability to effectively operate our business.
We rely heavily on information technology systems across our operations, including for management of our
supply chain, point-of-sale processing in our stores, our financial accounting and reporting, compensating our
employees, managing our website and various other processes and transactions. See “Business — Management
Information Systems.” Our ability to effectively manage our business and coordinate the sourcing, distribution and
sale of our merchandise depends significantly on the reliability and capacity of these systems.
System security risk issues could disrupt our information technology services, and any such disruption could
harm our net sales, increase our expenses, and harm our reputation and stock price.
Through our operations, we collect and store certain personal information that our customers provide to enroll
in promotional programs, register on our website, or otherwise communicate and interact with us. We may request
customer zip codes to assist in site selection or place customers on email distribution lists at their request. In
addition, we rely on third party technology and systems in certain aspects of our businesses, including to securely
transmit confidential information. Despite instituted safeguards for the protection of such information, security
could be compromised and confidential customer or business information misappropriated. Loss of customer or
business information could disrupt our operations, damage our reputation, and expose us to claims from customers,
financial institutions, payment card associations and other persons, any of which could have an adverse effect on our
business, financial condition and results of operations. In addition, compliance with more stringent privacy and
information security laws and standards may result in significant expense due to increased investment in technology
and the development of new operational processes.
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