LensCrafters 2011 Annual Report Download - page 109

| 33 >MANAGEMENT REPORT
effect on its business, results of operations and financial condition, including sales of
designer and other premium brands.
The industry is also subject to rapidly changing consumer preferences and future sales
may suffer if the fashion and consumer products industries do not continue to grow or if
consumer preferences shift away from its products. Changes in fashion could also affect
the popularity and, therefore, the value of the fashion licenses granted to the Group by
designers. Any event or circumstance resulting in reduced market acceptance of one
or more of these designers could reduce its sales and the value of its models from that
designer. Unanticipated shifts in consumer preferences may also result in excess inventory
and underutilized manufacturing capacity. In addition, the Group’s success depends, in
large part, on its ability to anticipate and react to changing fashion trends in a timely
manner. Any sustained failure to identify and respond to such trends could materially
adversely affect its business, results of operations and financial condition and may result in
the write-down of excess inventory and idle manufacturing facilities.
i) If the Group does not continue to negotiate and maintain favorable license arrangements,
its sales or cost of sales could suffer
The Group has entered into license agreements that enable it to manufacture and distribute
prescription frames and sunglasses under certain designer names, including Chanel,
Prada, Miu Miu, Dolce & Gabbana, D&G, Bvlgari, Tiffany & Co., Versace, Burberry, Polo
Ralph Lauren, Donna Karan, DKNY, Paul Smith Spectacles, Brooks Brothers, Anne Klein,
Stella McCartney, Tory Burch and Coach. These license agreements typically have terms
of between three and ten years and may contain options for renewal for additional periods
and require us to make guaranteed and contingent royalty payments to the licensor. The
Group believes that its ability to maintain and negotiate favorable license agreements with
leading designers in the fashion and luxury goods industries is essential to the branding
of its products and, therefore, material to the success of its business. For the years ended
December 31, 2011 and 2010, the sales realized through the Prada and Miu Miu brand
names together represented approximately 4.0 percent and 4.2 percent of total sales,
respectively. For the years ended December 31, 2011 and 2010, the sales realized through
the Dolce & Gabbana and D&G brand names together represented approximately
3.1 percent and 3.5 percent of total sales, respectively. Accordingly, if the Group is unable
to negotiate and maintain satisfactory license arrangements with leading designers, its
growth prospects and financial results could materially suffer from a reduction in sales or
an increase in advertising costs and royalty payments to designers.
j) As the Group operates in a complex international environment, if new laws, regulations
or policies of governmental organizations, or changes to existing ones, occur and cannot
be managed efficiently, the results could have a negative impact on its operations, its
ability to compete or its future financial results
Compliance with US and foreign laws and regulations that apply to its international
operations increases its costs of doing business, including cost of compliance, in certain
jurisdictions, and such costs may rise in the future as a result of changes in these laws and
regulations or in their interpretation or enforcement. The Group has implemented policies
and procedures designed to facilitate compliance with these laws and regulations, but