Lululemon 2011 Annual Report Download - page 17

Table of Contents
year increments if at all. We generally cannot cancel these leases at our option. If an existing or new store is not profitable, and we decide to
close it, as we have done in the past and may do in the future, we may nonetheless be committed to perform our obligations under the applicable
lease including, among other things, paying the base rent for the balance of the lease term. Similarly, we may be committed to perform our
obligations under the applicable leases even if current locations of our stores become unattractive as demographic patterns change. In addition,
as each of our leases expire, we may fail to negotiate renewals, either on commercially acceptable terms or at all, which could require us to close
stores in desirable locations.
Increasing labor costs and other factors associated with the production of our products in China could increase the costs to produce our
products.
During fiscal 2011, approximately 49% of our products were produced in China and increases in the costs of labor and other costs of doing
business in China could significantly increase our costs to produce our products and could have a negative impact on our operations, revenue and
earnings. Factors that could negatively affect our business include a potential significant revaluation of the Chinese Yuan, which may result in an
increase in the cost of producing products in China, labor shortage and increases in labor costs in China, and difficulties in moving products
manufactured in China out of Asia and through the ports on the western coast of North America, whether due to port congestion, labor disputes,
product regulations and/or inspections or other factors, and natural disasters or health pandemics impacting China. Also, the imposition of trade
sanctions or other regulations against products imported by us from, or the loss of “normal trade relations”
status with, China, could significantly
increase our cost of products imported into North America, Australia or New Zealand and harm our business.
We may not be able to successfully open new store locations in a timely manner, if at all, which could harm our results of operations.
Our growth will largely depend on our ability to successfully open and operate new stores. Our approach to identifying locations for our
stores typically favors street locations, lifestyle centers and malls where we can be a part of the community. As a result, our stores are typically
located near retailers or fitness facilities that we believe are consistent with our guests’ lifestyle choices. Sales at these stores are derived, in part,
from the volume of foot traffic in these locations. Our ability to successfully open and operate new stores depends on many factors, including,
among others, our ability to:
Successful new store openings may also be affected by our ability to initiate our grassroots marketing efforts in advance of opening our
first store in a new market. We typically rely on our grassroots marketing efforts to build awareness of our brand and demand for our products.
Our grassroots marketing efforts are often lengthy and must be tailored to each new market based on our emerging understanding of the market.
Accordingly, there can be no assurance that we will be able to successfully implement our grassroots marketing efforts in a particular market in a
timely manner, if at all. Additionally, we may be unsuccessful in identifying new markets where our technical athletic apparel and other products
and brand image will be accepted or the performance of our stores will be considered successful.
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identify suitable store locations, the availability of which is outside of our control;
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negotiate acceptable lease terms, including desired tenant improvement allowances;
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hire, train and retain store personnel and field management;
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assimilate new store personnel and field management into our corporate culture;
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source sufficient inventory levels; and
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successfully integrate new stores into our existing operations and information technology systems.