Coach 2010 Annual Report Download - page 16

TABLE OF CONTENTS
Our business is subject to the risks inherent in global sourcing activities.
As a company engaged in sourcing on a global scale, we are subject to the risks inherent in such activities, including, but not limited to:
•unavailability of or significant fluctuations in the cost of raw materials,
•compliance with labor laws and other foreign governmental regulations,
•imposition of additional duties, taxes and other charges on imports or exports,
•increases in the cost of labor, fuel, travel and transportation,
•compliance with our Global Business Integrity Program,
•disruptions or delays in shipments,
•loss or impairment of key manufacturing sites,
•inability to engage new independent manufacturers that meet the Company’s cost-effective sourcing model,
•product quality issues,
•political unrest, and
•natural disasters, acts of war or terrorism and other external factors over which we have no control.
While we require our independent manufacturers and suppliers to operate in compliance with applicable laws and regulations, as well as
our Global Operating Principles and/or Supplier Selection Guidelines, we do not control these manufacturers or suppliers or their labor or
other business practices. Copies of our Global Business Integrity Program, Global Operating Principles and Supplier Selection Guidelines
are posted on our website, coach.com. The violation of labor or other laws by an independent manufacturer or supplier, or divergence of an
independent manufacturer’s or suppliers’ labor practices from those generally accepted as ethical or appropriate in the U.S., could interrupt
or otherwise disrupt the shipment of our products, harm our trademarks or damage our reputation. The occurrence of any of these events
could adversely affect our financial condition and results of operations.
While we have business continuity and contingency plans for our sourcing sites, significant disruption of manufacturing for any of the
above reasons could interrupt product supply and, if not remedied in a timely manner, could have an adverse impact on our business.
Increases in our costs, such as raw materials, labor or freight could negatively impact our overall profitability. Labor costs at many of
our manufacturers has been increasing significantly and, as the middle class in developing countries continues to grow, it is unlikely that
such cost pressure will abate. The cost of transportation has been increasing as well and it is unlikely such cost pressure will abate if oil
prices continue to increase. We may not be able to offset such increases in raw materials or labor or transportation costs through pricing
measures or other means. These increasing costs of productions could also adversely affect our ability to achieve the gross margin objectives
we have established.
Our business is subject to increased costs due to excess inventories if we misjudge the demand for our products.
If Coach misjudges the market for its products it may be faced with significant excess inventories for some products and missed
opportunities for other products. In addition, because Coach places orders for products with its manufacturers before it receives wholesale
customers’ orders, it could experience higher excess inventories if wholesale customers order fewer products than anticipated. If that occurs,
we may be forced to rely on markdowns or promotional sales to dispose of excess, slow-moving inventory, which may negatively impact
our business.
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