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Asset Management and Custody Banks |
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Express intent |
Provide |
Military |
Event Codes |
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Yield |
Accident |
Yield to order |
Agree |
Endorse |
Riot |
Demand |
Solicit support |
Wiki | Wiki Summary |
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Risk Factors |
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STRIDE RITE CORP Item 1A Risk Factors |
Mature Markets; Competition; Consumer Trends Our strategy for growth depends upon increasing the acceptance of our current brands in our major markets, expanding into new markets and increasing the number of footwear products and brands that we sell |
There can be no assurance that we will be able to successfully develop new branded products or acquire existing brands from third parties |
The bulk of our sales are in the United States and Canada where the market is mature for many of our products |
To grow our business, we must increase our market share at the expense of our competitors, and there can be no assurance we will be successful |
Our efforts to expand sales outside the United States and Canada may not succeed |
Both the footwear industry specifically, and the fashion industry in general, are subject to rapid and substantial shifts in consumer tastes and preferences |
There are many competitors in our markets with substantially greater financial resources, production, marketing and product development capabilities |
Our performance may be hurt by our competitors’ product development, sourcing, pricing, innovation and marketing strategies |
In addition, we expect the footwear marketplace in the United States to continue to experience the entry of brands from foreign companies |
The fashion and retail industries are subject to sudden shifts in consumer trends and consumer spending, on which our results are, in part, dependent |
Consumer spending may be influenced by consumers’ disposable income, which may fluctuate upon a number of factors, including general economic conditions, consumer confidence and business conditions |
Moreover, consumer acceptance of our new products may fall below expectations and the launch of new product lines may be delayed |
The results of our wholesale businesses are affected by the buying plans of our customers, which include large department stores, as well as smaller retailers |
Our wholesale customers may not inform us of changes in their buying plans until it is too late for us to make the necessary adjustments to our product lines and marketing strategies |
While we believe that purchasing decisions in many cases are made independently by individual stores or store chains, we are exposed to decisions by the 7 ______________________________________________________________________ [31]Table of Contents controlling owner of a store chain, to decrease the amount of footwear products purchased from us |
In addition, the retail industry periodically experiences consolidation |
We face a risk that our wholesale customers may consolidate, restructure, reorganize or realign in ways that could decrease the number of stores or the amount of shelf space that carry our products |
We also face a risk that our wholesale customers could develop in-house brands or utilize the private labeling of footwear products |
The impact that e-commerce will have on the retail industry in the future is uncertain and may adversely affect our business |
Additionally, the strength or weakness of the overall economy as well as severe weather conditions can have a substantial effect on our business |
Stride Rite-owned retail stores are increasingly significant to our business, especially with respect to the Stride Rite brand |
In the future, we may evaluate new retail concepts to market the other footwear brands owned by us |
The management of our Stride Rite Children’s Group does extensive research on potential sites for new stores, including demographic studies and an evaluation of the impact that potential locations would have on the results of our existing Stride Rite-owned stores and our network of locations operated by independent licensed dealers |
Despite this careful evaluation, new Stride Rite stores may not meet sales expectations and new retail concepts may not achieve the expected financial results |
The opening of new stores may also be delayed for a variety of reasons |
During fiscal 2006, we plan to open approximately 33 Stride Rite retail stores |
Integration of the Saucony Acquisition During the fourth quarter of the 2005 fiscal year we acquired Saucony, Inc |
This was a significant purchase and our ability to fully realize the anticipated benefits from the acquisition will depend in part on our achieving the anticipated synergies with Saucony |
There is the possibility of incurring costs or experiencing difficulties related to this integration that may adversely affect our business |
Inventory Obsolescence The fashion-oriented nature of our industry, the rapid changes in customer preferences and the extended product development and sourcing lead times also leave us vulnerable to an increased risk of inventory obsolescence |
While we have successfully managed this risk in the past, and believe we can successfully manage it in the future, our revenue and operating margins will suffer if we are unable to do so |
Retention of Major Brand License We have derived significant revenues and earnings in the past from our exclusive licensing agreement with Tommy Hilfiger Licensing, Inc |
to produce and sell Tommy Hilfiger branded footwear |
Our Tommy Hilfiger license was amended and renewed for a term expiring March 31, 2007 |
Whether our license with Tommy Hilfiger will remain in effect depends on our achieving certain minimum sales levels for the licensed products |
Although we currently are exceeding these minimum sales levels, there can be no assurance that we will in the future |
We believe we enjoy a good relationship with Tommy Hilfiger Licensing, Inc |
In addition, Tommy Hilfiger Corp |
has entered into an agreement to be acquired by Apax Partners |
As a result of the pending acquisition, there can be no assurance that we will be able to renew our license agreement with Tommy Hilfiger Licensing, Inc |
The loss of the Tommy Hilfiger license would have a material adverse effect on our business |
The aggregate revenues produced by our Tommy Hilfiger licenses were approximately dlra126 million in fiscal 2005 and are included in the Tommy Hilfiger Footwear segment and in the Other Wholesale footwear segment (specifically the Stride Rite International division), Stride Rite Children’s Group – Retail Division, and the Stride Rite Children’s Group – Wholesale Division |
Overseas Production and Raw Material Procurement We purchase substantially all of our product lines and raw materials overseas and expect to do so for the foreseeable future |
Our international sourcing subjects us to the risks of doing business abroad |
Such risks include the impact on product development or manufacturing as a result of health risks, expropriation, acts of war 8 ______________________________________________________________________ [32]Table of Contents or terrorism, political disturbances, strikes or other labor disputes, political instability and similar events, including trade sanctions, loss of normalized trade relations status, export duties, import controls, quotas, port strikes, port congestion, port capacity, strikes, delays, availability of ships, availability of containers, truck availability, rail availability and other trading restrictions, as well as fluctuations in currency values |
Moreover, we rely heavily on independent third-party manufacturing facilities, primarily located in China, to produce our footwear products |
While we believe our relationships with such third-party manufacturing facilities are strong, if trade relations between the United States and China or other countries in which we manufacture our products deteriorate or are threatened by instability, our business may be adversely affected |
We cannot predict the effect that changes in the economic and political conditions in China could have on the economics of doing business with Chinese manufacturers |
Although we believe that we could find alternative manufacturing sources for our footwear products with independent third-party manufacturing facilities in other countries, the loss of a substantial portion of our Chinese manufacturing capacity could have a material adverse effect on our business |
Due to the substantial quantity of footwear manufactured in China and its importance to the footwear industry, a major disruption would make it difficult to find capacity elsewhere in the short-term that could accommodate the overall industry-wide demand |
Also, if we were required to relocate a substantial portion of our manufacturing outside of China, there can be no assurance that we could obtain as favorable economic terms, which could adversely affect our performance |
Dependence on Logistical Systems Our business operations are dependent on our logistical systems, which include our order management system and our computerized warehouse network |
The logistical systems enable us to procure our footwear products from overseas manufacturers, transport it to our distribution facilities, store it and timely deliver it to our customers, in the correct sizes and styles |
A disruption to the logistical systems could have a material adverse impact on our business |
Intellectual Property Risk We believe that our patents and trademarks are important to our business and are generally sufficient to permit us to carry on our business as presently conducted |
We cannot, however, know whether we will be able to secure patents or trademark protection for our intellectual property in the future or whether that protection will be adequate for future products |
Further, we face the risk of ineffective protection of intellectual property rights in the countries where we source and distribute our products |
Finally, we cannot be sure that our activities will not infringe on the proprietary rights of others |
If we are compelled to prosecute infringing parties, defend our intellectual property or defend ourselves from intellectual property claims made by others, we may face significant expenses and liabilities |