LensCrafters 2012 Annual Report Download - page 120

ANNUAL REPORT 2012> 34 |
maintaining strict quality control and the ability to deliver products to our customers in
a timely and efficient manner. We must also continuously develop new product designs
and features, expand our information systems and operations, and train and manage an
increasing number of management level and other employees. If we are unable to manage
these matters effectively, our distribution process could be adversely affected and we
could lose market share in affected regions, which could materially adversely affect our
business prospects.
h) If we do not correctly predict future economic conditions and changes in consumer
preferences, our sales of premium products and profitability could suffer
The fashion and consumer products industries in which we operate are cyclical. Downturns
in general economic conditions or uncertainties regarding future economic prospects,
which affect consumer disposable income, have historically adversely affected consumer
spending habits in our principal markets and thus made the growth in sales and profitability
of premium priced product categories difficult during such downturns. Therefore, future
economic downturns or uncertainties could have a material adverse effect on our business,
results of operations and financial condition, including sales of our 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 our products. Changes in fashion could also
affect the popularity and, therefore, the value of the fashion licenses granted to us by
designers. Any event or circumstance resulting in reduced market acceptance of one or
more of these designers could reduce our sales and the value of our models from that
designer. Unanticipated shifts in consumer preferences may also result in excess inventory
and underutilized manufacturing capacity. In addition, our success depends, in large part,
on our 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
our business, results of operations and financial condition and may result in the write-down
of excess inventory and idle manufacturing facilities.
i) If we do not continue to negotiate and maintain favorable license arrangements, our
sales or cost of sales could suffer
We have entered into license agreements that enable us 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, Armani, Stella
McCartney, Tory Burch, Coach and Giorgio Armani. 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. We believe that our ability to maintain and negotiate favorable license
agreements with leading designers in the fashion and luxury goods industries is essential
to the branding of our products and, therefore, material to the success of our business. As
of year-end, Prada, Miu Miu, Dolce & Gabbana and D&G are the most significant brands
in terms of their contribution to Group’s total net sales. For the years ended December