Famous Footwear 2004 Annual Report Download - page 12

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Table of Contents
BROWN SHOE COMPANY, INC. 2003 FORM 10-K
As is common in the industry, we do not have any long-term contracts with our independent third-party foreign manufacturers. We cannot
ensure that we will not experience difficulties with such manufacturers, including reduction in the availability of production capacity, failure to
meet production deadlines or increases in manufacturing costs. Foreign manufacturing is subject to a number of risks, including work
stoppages, transportation delays and interruptions, political instability, expropriation, nationalization, foreign currency fluctuations, changing
economic conditions, the imposition of tariffs, import and export controls and other non-tariff barriers and changes in governmental policies.
Further, our products depend on the availability of leather. Any significant shortage of quantities or increases in leather costs could have a
material adverse effect on our business and results of operations.
China
We rely heavily on manufacturing facilities located in China. Historically, the trade relationship between the United States and China has not
had a material adverse effect on our business, financial condition or results of operations. There have been, however, and may in the future
be, threats to the trade relationships between the United States and China, including threats by the United States to limit trade relations with
China. There can be no assurance the trade relationship between the United States and China will not worsen, and if it does worsen, there
can be no assurance our business, financial condition or results of operations will not be materially adversely affected thereby. Further, 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 we could find alternative manufacturing sources for those products we currently source from
China through our existing relationships with independent third-party manufacturing facilities in other countries, the loss of a substantial
portion of our Chinese manufacturing capacity would have a material adverse effect on the Company.
Currency
Although we purchase products from certain foreign manufacturers in United States dollars and otherwise engage in foreign currency
hedging transactions, we cannot ensure that we will not experience cost variations with respect to exchange rate changes. We cannot predict
whether additional United States or foreign customs quotas, duties, taxes or other changes or restrictions will be imposed upon the
importation of non-domestically produced products in the future or what effect such actions could have on our business, financial condition or
results of operations.
Customer Concentration
Our wholesale customers include department stores and mass merchandisers. Several of our customers control more than one department
store and/or mass merchandiser chain. While we believe purchasing decisions in many cases are made independently by each department
store or mass merchandiser chain under such common ownership, a decision by the controlling owner of a group of department stores
and/or mass merchandisers or any other significant customer to decrease the amount of footwear products purchased from us could have a
material adverse effect on our business, financial condition or results of operations.
In addition, the retail industry has periodically experienced consolidation and other ownership changes, and in the future, our wholesale
customers may consolidate, restructure, reorganize or realign, any of which could decrease the number of stores that carry our products.
Intellectual Property Risks
Licenses
The success of our Wholesale division has to date been due, in part, to our ability to attract and retain licensors which have strong, well-
recognized brands and trademarks. Our license agreements are generally for an initial term of two to three years, subject to renewal, but
even where we have longer-term licenses or has an option to renew a license, such license is dependent upon us achieving certain results in
marketing the licensed material. While we believe our relationships with our existing licensors are good and we believe we will generally be
able to renew our existing licenses and obtain new licenses in the future, there can be no assurance we will be able to renew our current
licenses or obtain new licenses to replace lost licenses. In addition, certain of our license agreements are not exclusive, and new or existing
competitors may obtain similar licenses.
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