Coach 2014 Annual Report Download - page 16

TABLE OF CONTENTS
current and potential customers. Despite our preventative efforts, our systems are vulnerable from time-to-time to damage, disruption or interruption from,
among other things, physical damage, natural disasters, inadequate system capacity, system issues, security breaches, email blocking lists, computer viruses
or power outages. Any material disruptions in our e-commerce presence or information technology systems could have a material adverse effect on our
business, financial condition and results of operations.
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,
• compliance with U.S. laws regarding the identification and reporting on the use of “conflict minerals” sourced from the Democratic Republic of the
Congo in the Company’s products,
• disruptions or delays in shipments,
• loss or impairment of key manufacturing or distribution sites,
• inability to engage new independent manufacturers that meet the Company’s cost-effective sourcing model,
• product quality issues,
• political unrest,
• natural disasters or other extreme weather events, whether as a result of climate change or otherwise, and
• 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, environmental or other business
practices. Copies of our Global Business Integrity Program, Global Operating Principles and Supplier Selection Guidelines are posted on our website,
www.coach.com. The violation of labor, environmental or other laws by an independent manufacturer or supplier, or divergence of an independent
manufacturer’s or supplier’s 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 materially adversely affect our
business, financial condition and results of operations.
We are dependent on a limited number of distribution and sourcing centers. While we have business continuity and contingency plans for our sourcing
and distribution center sites, significant disruption of manufacturing or distribution for any of the above reasons could interrupt product supply, result in a
substantial loss of inventory, increase our costs, disrupt deliveries to our customers and our retail stores, and, if not remedied in a timely manner, could have a
material adverse impact on our business. Because our distribution centers include automated and computer controlled equipment, they are susceptible to
risks including power interruptions, hardware and system failures, software viruses, and security breaches. We maintain a distribution center in Jacksonville,
Florida, owned and operated by Coach. To support our growth in China and Europe, we established distribution centers in Shanghai, China and Oldenzaal,
The Netherlands, owned and operated by a third-party, allowing us to better manage the logistics in these regions while reducing costs. We also operate
distribution centers, through third-parties, in Japan, China, Hong Kong, Singapore, Taiwan, Malaysia and South Korea. The warehousing of Coach
merchandise, store replenishment and processing direct-to-customer orders is handled by these centers and a prolonged disruption in any center’s operation
could materially adversely affect our business and operations.
Increases in our costs, such as raw materials, labor or freight could negatively impact our gross margin. Labor costs at many of our manufacturers have
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, labor or transportation costs through pricing measures or other means.
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