Columbia Sportswear 2004 Annual Report Download - page 33

have experienced financial difficulties in the past, which in turn have had an adverse effect on our business, and
we believe that retailers are being more cautious than usual with orders as a result of weakness in the retail
economy. A slowing economy in our key markets could have an adverse effect on the financial health of our
customers, which could in turn have a material adverse effect on our results of operations and financial condition.
We Operate in Very Competitive Markets
The markets for outerwear, sportswear, rugged footwear, tents and sleeping bags are highly competitive, as
are the markets for our licensed products. In each of our geographic markets, we face significant competition
from global and regional branded apparel and footwear companies. In many instances, retailers who are our
customers pose our most significant competitive threat by marketing apparel, footwear and equipment under their
own labels. We also compete with other companies for the production capacity of independent manufacturers
that produce our products and for import quota capacity. Many of our competitors are significantly larger and
have substantially greater financial, distribution, marketing and other resources and have achieved greater
recognition for their products than we have. Increased competition could result in reductions in display areas in
retail locations, reductions in sales, or reductions in our profit margins, any of which could have a material
adverse effect on our results of operations and financial condition.
We Face Risks Associated with Consumer Preferences and Fashion Trends
Changes in consumer preferences or consumer interest in outdoor activities could have a material adverse
effect on our business. In addition, although we believe that our products have not been significantly affected by
past fashion trends, changes in fashion trends could have a greater impact as we expand our offerings to include
more product categories in more geographic areas. We also face risks because our business requires us to
anticipate consumer preferences. Our decisions about product designs often are made far in advance of consumer
acceptance. Although we try to manage our inventory risk through early order commitments by retailers, we must
generally place production orders with manufacturers before we have received all of a season’s orders, and orders
may be cancelled by retailers before shipment. If we fail to anticipate accurately and respond to consumer
preferences, we could experience lower sales, excess inventories and lower profit margins, any of which could
have a material adverse effect on our results of operations and financial condition.
Our Success Depends on Our Use of Proprietary Rights
Our registered and common law trademarks have significant value and are important to our ability to create
and sustain demand for our products. We also place significant value on our trade dress, the overall appearance
and image of our products. From time to time, we discover products that are counterfeit reproductions of our
products, design “knock offs,” or otherwise infringe on our proprietary rights. Counterfeiting activities typically
increase as brand recognition increases, especially in markets outside the United States. If we are unsuccessful in
challenging a party’s products on the basis of trademark or design infringement, continued sales of these
products could adversely affect our sales and our brand and result in the shift of consumer preference away from
our products. The actions we take to establish and protect trademarks and other proprietary rights may not be
adequate to prevent imitation of our products by others or to prevent others from seeking to block sales of our
products as violations of proprietary rights. Additionally, in markets outside of the United States, it may be more
difficult for us to establish our proprietary rights and to successfully challenge use of those rights by other
parties. Actions or decisions in the management of our intellectual property portfolio may affect the strength of
the brand, which may in turn have a material adverse effect on our results of operations and financial condition.
Although we have not been materially inhibited from selling products in connection with trademark and
trade dress disputes, as we extend our brand into new product categories and new product lines and expand the
geographic scope of our marketing, we could become subject to litigation based on allegations of the
infringement of intellectual property rights of third parties. Future litigation also may be necessary to defend us
against such claims or to enforce and protect our intellectual property rights. Any intellectual property litigation
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