Coach 2014 Annual Report Download - page 13

TABLE OF CONTENTS
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You should consider carefully all of the information set forth or incorporated by reference in this document and, in particular, the following risk
factors associated with the business of Coach and forward-looking information in this document. Please also see “Special Note on Forward-Looking
Information” at the beginning of this report. The risks described below are not the only ones we face. Additional risks not presently known to us or that we
currently deem immaterial may also have an adverse effect on us. If any of the risks below actually occur, our business, results of operations, cash flows or
financial condition could suffer.
Economic conditions could materially adversely affect our financial condition, results of operations and consumer purchases of luxury items.
Our results can be impacted by a number of macroeconomic factors, including but not limited to consumer confidence and spending levels,
unemployment, consumer credit availability, raw materials costs, fuel and energy costs, global factory production, commercial real estate market conditions,
credit market conditions and the level of customer traffic in malls and shopping centers.
Demand for our products, and consumer spending in the premium handbag and accessories market generally, is significantly impacted by trends in
consumer confidence, general business conditions, interest rates, the availability of consumer credit, and taxation. Consumer purchases of discretionary
luxury items, such as Coach products, tend to decline during recessionary periods or periods of sustained high unemployment, when disposable income is
lower.
The growth of our business depends on the successful execution of our growth strategies, including our efforts to expand internationally into a global
lifestyle brand.
Our growth depends on the continued success of existing products, as well as the successful design and introduction of new products. Our ability to
create new products and to sustain existing products is affected by whether we can successfully anticipate and respond to consumer preferences and fashion
trends. The failure to develop and launch successful new products could hinder the growth of our business. Also, any delay in the development or launch of a
new product could result in our company not being the first to bring product to market, which could compromise our competitive position.
Additionally, our current growth strategy includes plans to expand in a number of international regions, including Asia and Europe. We currently plan to
open additional Coach stores in China, Europe and other international markets, and we have entered into strategic agreements with various partners to
expand our operations in South America. In addition, we have taken control of certain of our retail operations in Europe and the Asia-Pacific region,
including the United Kingdom, Spain, Ireland, Portugal, France and Germany during calendar 2013, and Malaysia and South Korea during calendar year
2012. We do not yet have significant experience directly operating in these countries, and in many of them we face established competitors. Many of these
countries have different operational characteristics, including but not limited to employment and labor, transportation, logistics, real estate, environmental
regulations and local reporting or legal requirements.
Furthermore, consumer demand and behavior, as well as tastes and purchasing trends may differ in these countries, and as a result, sales of our product
may not be successful, or the margins on those sales may not be in line with those we currently anticipate. Further, such markets will have upfront short-term
investment costs that may not be accompanied by sufficient revenues to achieve typical or expected operational and financial performance and therefore may
be dilutive to Coach in the short-term. In many of these countries, there is significant competition to attract and retain experienced and talented employees.
Consequently, if our international expansion plans are unsuccessful, or we are unable to retain and/or attract key personnel, our business, financial
condition and results of operation could be materially adversely affected.
The successful execution of our multi-year transformation initiatives is key to the long-term growth of our business.
During the fourth quarter of fiscal 2014, we announced a multi-year strategic plan with the objective of transforming the brand and reinvigorating
growth, which will enable the Company to return to ‘best-in-class’ profitability. Key operational and cost elements in order to fund and execute this plan
include: (i) the future investment of approximately $500 million in capital improvements in our stores and wholesale locations; (ii) the optimization of our
North American store fleet including the closure of approximately 70 underperforming locations, (iii) the realignment of inventory levels to reflect our
elevated product strategy; (iv) the investment of approximately $50 million in incremental advertising costs to further promote our new strategy; and (v) the
significant scale-back of our promotional cadence, particularly within our outlet Internet sales site. The Company believes that long-term growth can be
realized through its transformational efforts over time. However, there is no assurance that such efforts will be successful in achieving long-term growth or
changing the perception of Coach from an accessories brand to a global lifestyle brand. Refer to Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 3, "Transformation, Restructuring and Other Related Actions," for further information regarding the
Transformation Plan.
If the execution of our transformation plan falls short, our business, financial condition and results of operation could be materially adversely affected.
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