LensCrafters 2015 Annual Report Download - page 24

Management Report as of December 31, 2015 Page 20 of 35
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.
h) 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, Bvlgari, Tiffany & Co., Versace,
Burberry, Ralph Lauren, DKNY, Paul Smith, Brooks Brothers, Tory Burch, Coach, Armani, Michael Kors and Starck Eyes.
These license agreements typically have terms of between four 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. Accordingly, if
we are unable to negotiate and maintain satisfactory license arrangements with leading designers, our growth prospects and
financial results could materially suffer from a reduction in sales or an increase in advertising costs and royalty payments to
designers. For the years ended December 31, 2015 and 2014, no single license agreement represented greater than 5.0% of
total sales.
i) As we operate 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 our operations, our ability to compete or our future financial results.
Compliance with European, U.S. and other laws and regulations that apply to our international operations increases our
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. This includes, in particular, our