Coach 2014 Annual Report Download - page 17

TABLE OF CONTENTS
We are subject to risks associated with leasing retail space subject to long-term and non-cancelable leases. We may be unable to renew leases at the end
of their terms. If we close a leased retail space, we remain obligated under the applicable lease.
We do not own any of our retail store locations. We lease our corporate-owned stores under long-term, non-cancelable leases, which usually have initial
terms ranging from five and ten years, with renewal options typically in five year increments. We believe that the leases we enter into in the future will likely
be long-term and non-cancelable and have similar renewal options. Generally, our leases are “net” leases, which require us to pay our proportionate share of
the cost of insurance, taxes, maintenance and utilities. We generally cannot cancel these leases at our option. If we determine that it is no longer economic to
operate a retail store subject to a lease and decide to close it as we have done in the past and will do in the future, we may remain obligated under the
applicable lease for, among other things, payment of the base rent for the balance of the lease term. For example, in the fourth quarter of FY14, we announced
that we will close approximately 70 retail stores in North America. In some instances, we may be unable to close an underperforming retail store due to
continuous operation clauses in our lease agreements. In addition, as each of our leases expire, we may be unable to negotiate renewals, either on
commercially acceptable terms or at all, which could cause us to close retail stores in desirable locations. Our inability to secure desirable retail space or
favorable lease terms could impact our ability to grow. Likewise, our obligation to continue making lease payments in respect of leases for closed retail
spaces could have a material adverse effect on our business, financial condition and results of operations.
Our success depends, in part, on attracting, developing and retaining qualified employees, including key personnel.
The ability to successfully execute against our goals is heavily dependent on attracting, developing and retaining qualified employees, including our
senior management team. Competition in our industry to attract and retain these employees is intense and is influenced by: our ability to offer competitive
compensation and benefits, employee morale, our reputation, recruitment by other employers, perceived internal opportunities, non-competition and non-
solicitation agreements and macro unemployment rates. Our recently announced transformation plan and its attendant changes regarding organizational
efficiencies may intensify this risk.
We depend on the guidance of our senior management team and other key employees who have significant experience and expertise in our industry and
our operations. In recent years, we have experienced turnover of several senior management roles and we have focused time and resources on recruiting or
promoting from within the new members of our current senior management team. The continued turnover of senior management or the unexpected loss of one
or more of our key personnel or any negative public perception with respect to these individuals could also have a material adverse effect on our business,
results of operations and financial condition. We do not maintain key-person or similar life insurance policies on any of senior management team or other key
personnel.
Our North American wholesale business could suffer as a result of consolidations, liquidations, restructurings and other ownership changes in the retail
industry.
Our wholesale business, primarily consisting of the U.S. Wholesale business, comprised approximately 5% of total net sales for fiscal 2014. Continued
consolidation in the retail industry could further decrease the number of, or concentrate the ownership of, stores that carry our and our licensees’ products.
Furthermore, a decision by the controlling owner of a group of stores or any other significant customer, whether motivated by competitive conditions,
financial difficulties or otherwise, to decrease or eliminate the amount of merchandise purchased from us or our licensing partners could result in an adverse
effect on the sales and profitability within this channel.
We rely on our licensing partners to preserve the value of our licenses and the failure to maintain such partners could harm our business.
We currently have multi-year agreements with licensing partners for our footwear, eyewear, watches and fragrance products. See Item
1 — “Business — Products” where discussed further. In the future, we may enter into additional licensing arrangements. The risks associated with our own
products also apply to our licensed products as well as unique problems that our licensing partners may experience, including risks associated with each
licensing partner’s ability to obtain capital, manage its labor relations, maintain relationships with its suppliers, manage its credit and bankruptcy risks, and
maintain customer relationships. While we maintain significant control over the products produced for us by our licensing partners, any of the foregoing
risks, or the inability of any of our licensing partners to execute on the expected design and quality of the licensed products or otherwise exercise operational
and financial control over its business, may result in loss of revenue and competitive harm to our operations in the product categories where we have entered
into such licensing arrangements. Further, while we believe that we could replace our existing licensing partners if required, our inability to do so for any
period of time could materially adversely affect our revenues and harm our business.
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