Columbia Sportswear 2010 Annual Report Download - page 23

We Rely on Technical Innovation and Functional Design to Compete in the Market for our Products
Technical innovation and functional design of footwear, apparel, and equipment is essential to distinguish
our products in the marketplace and achieve commercial success. Research and development plays a key role in
technical innovation. We rely upon specialists in the fields of chemistry, biochemistry, engineering, industrial
design, electronics and related fields, guided by consumer feedback, to develop and test innovative performance
products. Although we are committed to designing innovative and functional products that deliver relevant
performance benefits to consumers who participate in a wide range of competitive and recreational outdoor
activities, if we fail to introduce technical innovation in our products that address consumers’ performance
expectations, demand for our products could decline.
As we strive to achieve technical innovations, we face a greater risk of inadvertent infringements of third
party rights or compliance issues. In addition, technical innovations often involve more complex manufacturing
processes. More complex manufacturing processes may lead to higher instances of quality issues, and if we
experience problems with the quality of our products, we may incur substantial expense to remedy the problems.
Failure to successfully bring to market technical innovations in our product lines could have a material adverse
effect on our financial condition, results of operations or cash flows.
We Face Risks Associated with Consumer Preferences and Fashion Trends
Changes in consumer preferences or consumer interest in outdoor activities may have a material adverse
effect on our business. In addition, changes in fashion trends may have a greater impact than in the past as we
expand our offerings to include more product categories in more geographic areas. We also face risks because
our business requires us and our customers 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 a significant portion of our seasonal
production orders with our independent factories before we have received all of a season’s orders, and orders
may be cancelled by customers before shipment. If we or our customers fail to anticipate and respond to
consumer preferences, we may have lower sales, excess inventories and lower profit margins, any of which could
have a material adverse effect on our financial condition, results of operations or cash flows.
Our Success Depends on Our Use and Protection of Intellectual Property Rights
Our registered and common law trademarks and our patented or patent-pending designs and technologies
have significant value and are important to our ability to differentiate our products from our competitors’ and 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 or that otherwise infringe on our proprietary rights. Counterfeiting activities
typically increase as brand recognition increases, especially in markets outside the United States. Increased
instances of counterfeit manufacture and sales may adversely affect our sales and our brand and result in a 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. 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. We also license our proprietary rights to third parties. Failure to choose appropriate
licensees and licensed product categories may dilute or harm our brand image. In addition to our own intellectual
property rights, many of the intellectual property rights in the technology, fabrics and processes used to
manufacture our products are generally owned or controlled by our suppliers and are generally not unique to us.
In those cases, we may not be able to adequately protect our products or differentiate the performance
characteristics and fabrications from those of our competitors. Actions or decisions in the management of our
intellectual property portfolio may affect the strength of our brands, which may in turn have a material adverse
effect on our financial condition, results of operations or cash flows.
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