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Item 1A. Risk Factors

2021-03-22 compared with 2020-05-01 · 148 added, 231 removed, 116 unchanged (77% of the section changed)

In addition to the other information in this Annual Report on Form 10-K, shareholders or prospective investors should carefully consider the following risk factors when evaluating Designer Brands Inc.

In addition to the other information in this Form 10-K, shareholders or prospective investors should carefully consider the following risk factors when evaluating Designer Brands Inc.

If any of the events described below occurs, our business, financial condition, results of operations and future growth prospects could be adversely affected.

Risks Relating to Our Business

The coronavirus outbreak has had, and may continue to have, a material adverse impact on our business, liquidity, financial condition, and results of operations.

In March 2020, the World Health Organization declared the coronavirus ("COVID-19") outbreak a pandemic, which continues to spread throughout North America and worldwide.

The health and safety of our customers and employees remain our top priority as we continue to make decisions during this rapidly evolving situation.

We have taken decisive actions across our businesses to help protect employees, customers and others in the communities we serve.

As a measure to limit the spread of the virus, effective March 18, 2020, we temporarily closed all of our stores in the U.S.

Our e-commerce business will continue to be available to customers and our stores will be used in the fulfillment of online orders to be shipped to customers or available for curbside pickup.

During this unprecedented period of uncertainty, we have in place business continuity plans involving adjustments to operational plans, inventory disciplines, liquidity management, and reductions to our expense and capital expenditure plans.

Such measures include implementing temporary leaves of absence for over 80% of our workforce without direct pay and pay reductions for nearly all employees not placed on temporary leave.

The COVID-19 outbreak and the temporary closure of all of our stores has had a material adverse impact on our business, liquidity, financial condition, and results of operations.

While we cannot foresee whether the outbreak of COVID-19 will be effectively contained, nor can we predict the severity and duration of its impact, based on our current understanding of governmental mandates and maintaining the health and safety of our customers and employees, we believe our stores will primarily begin re-opening in the second quarter of fiscal 2020 with a gradual return of store traffic through the remainder of fiscal 2020.

As such, the impacts of COVID-19 to our businesses are highly uncertain and we will continue to assess the financial impacts.

The disruption to the global economy and to our business, along with a sustained decline in our stock price, may lead to triggering events that may indicate that the carrying value of certain assets, including inventories, accounts receivables, long-lived assets, intangibles, and goodwill, may not be recoverable.

Restrictions under our Credit Facility could limit our ability to access the liquidity we need to run our business.

Our senior unsecured revolving credit agreement (the "Credit Facility"), with a maturity date of August 25, 2022 , provides a revolving line of credit up to $400 million , with sub-limits for the issuance of up to $50 million in letters of credit, swing loan advances of up to $15 million , and the issuance of up to $75 million in foreign currency revolving loans and letters of credit.

The Credit Facility may be used to provide funds for working capital, capital expenditures, and other expenditures.

Subsequent to February 1, 2020 , we borrowed $205.0 million from the Credit Facility as a precautionary measure to increase our cash position and preserve financial flexibility considering uncertainty in the U.S.

and global markets resulting from COVID-19, resulting in $2.0 million of available for borrowing.

Our future operations may not generate sufficient liquidity to pay amounts that come due and our cash needs may increase in the future.

In addition, our existing Credit Facility contains, and any future indebtedness that we may incur may contain, financial and other restrictive covenants that limit our ability to operate our business or raise capital.

If we fail to comply with these covenants or to make payments under our indebtedness when due, then we would be in default under that indebtedness, which could, in turn, result in that and our other indebtedness becoming immediately payable in full.

On April 30, 2020, the Credit Facility was amended, which resulted in various changes including:

Provides for a lien on all of the Company's assets;

Reduces the borrowing availability to $375.0 million on October 31, 2020, $350.0 million on January 30, 2021, $325.0 million on May 1, 2021, and $300.0 million on July 31, 2021;

Redefines the components for calculating the leverage ratio and fixed charge coverage ratio to adjust for certain temporary impacts due to COVID-19;

Changes the maximum leverage ratio covenant to 3.50:1 as of May 2, 2020, 4.00:1 as of August 1, 2020, 3.75:1 as of October 31, 2020, and 3.50:1 as of January 30, 2021 and as of the end of each fiscal quarter thereafter;

Changes the minimum fixed charge coverage ratio to 1.25:1 as of May 2, 2020 and 1.05:1 as of August 1, 2020 and as of the end of each fiscal quarter thereafter;

Restricts the Company from paying dividends, making share repurchases, and making certain acquisitions.

Our expanded international operations expose us to political, economic, operational, compliance and other risks.

As a result of several acquisitions, we have international operations, including in China, Canada and Brazil.

The COVID-19 outbreak has had, and may continue to have, a material adverse impact on our business, operations, liquidity, financial condition, and results of operations.

In March 2020, the World Health Organization declared the coronavirus disease ("COVID-19") outbreak a pandemic.

On March 18, 2020, to help control the spread of the virus and protect the health and safety of our customers, associates, and the communities we serve, we temporarily closed all of our stores in the U.S.

In addition, we took several actions in late March 2020 to reduce costs and operations to levels that were more commensurate with then-current sales, including furloughs and pay reductions.

As this continues to be an unprecedented period of uncertainty, we have made and may continue to make adjustments to our operational plans, inventory controls, and liquidity management, as well as reductions to our expense and capital expenditure plans.

During the second quarter and into the third quarter of fiscal 2020, we re-opened all of our stores, discontinued the furlough program, and restored pay for our associates that had taken pay reductions.

Beginning in July 2020, we initiated an internal reorganization and reduction of our workforce with additional actions taken throughout fiscal 2020, resulting in the elimination of approximately 1,000 associate positions, including over 200 vacant positions that will not be filled.

Following the re-opening of stores, we experienced and have continued to experience significantly reduced customer traffic and net sales, which included subsequent store closures and reduced hours in certain areas, primarily in Canada, where government-imposed restrictions were mandated.

Our retail customers in the Brand Portfolio segment have had and are having similar experiences.

Given the continuation of overall depressed consumer sentiment, customer behavior has been and may continue to be slow to return to pre-COVID-19 patterns and levels, if at all.

We have continued to serve our customers through our e-commerce businesses during the period that our stores were closed and beyond, but store closures primarily during the first half of fiscal 2020 and continuing reduced customer traffic resulted in a sharp decline in our net sales and cash flows.

The COVID-19 pandemic remains challenging and unpredictable.

The ongoing and prolonged nature of the outbreak has continued to adversely impact our business and may lead to further adjustments to store operations, as well as continue to drive changes in customer behaviors and preferences, including reductions in consumer spending, which may necessitate further shifts in our business model.

As such, the ultimate impacts of the COVID-19 outbreak to our businesses remain highly uncertain and will depend on future developments, including the widespread availability, use and effectiveness of vaccines, which are highly uncertain and cannot be predicted.

We may have additional write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

Losses or disruptions associated with our distribution systems, including our distribution and fulfillment centers and our stores, could have a material adverse effect on our business and operations.

Retail segment operations, the majority of our inventory is shipped directly from suppliers to our distribution center in Columbus, Ohio and a West Coast facility operated by a third party, where the inventory is then processed, sorted and shipped to one of our pool locations located throughout the country and then on to the stores.

Our inventory can also be shipped directly from our fulfillment center, also located in Columbus, Ohio, and supported by a third-party service provider, to our

For our Canada Retail segment, we engage a logistics service provider to receive purchases and distribute them to our stores.

Through our ship-from-store capability, both in the U.S.

and in Canada, inventory is shipped directly from our stores to customers.

Through our drop ship program, inventory is shipped from the vendor's warehouse directly to the customer.

For our Brand Portfolio segment, the majority of our inventory is shipped directly from factories in foreign countries to our distribution center in Westampton, New Jersey, where our wholesale inventory is then processed, sorted and provided to our customers' shipping carriers.

Our operating results depend on the orderly operation of our receiving, distribution, and fulfillment processes, which in turn depends on vendors' adherence to shipping schedules and our effective management of our facilities.

We may not anticipate all the changing demands that our operations will impose on our receiving, distribution, and fulfillment system, and events beyond our control, such as disruptions in operations due to public health threats, such as the COVID-19 outbreak, integration of new stores or customers, catastrophic events, labor disagreements, or shipping problems, any of which may result in delays in the delivery of merchandise to our stores and customers.

We rely on the flow of goods through ports worldwide on a consistent basis from factories and suppliers.

Disruptions at ports could create significant risks for our business, particularly if these disruptions occur during peak importing times.

For example, COVID-19 has resulted in delays at ports due to shipping backlog, availability of vessels, capacity constraints, and other disruptions.

If we experience significant delays in receiving product, this could result in canceled orders by retailer customers, unanticipated inventory shortages or receipt of seasonal product after the peak selling season, and increased expense of air freight, which could have a material adverse effect on our business and operations.

Our distribution system is dependent on the timely performance of services by third parties.

Our third-party vendors may be the victim of cyber-related attacks that could lead to operational disruptions that could have an adverse effect on our ability to fulfill customer orders.

The COVID-19 pandemic could also impact our ability to timely meet our customers’ needs for fulfillment due to disruptions with third-party vendors, carriers, and other service providers, as well as increased freight and logistics costs.

We are also subject to risk of damage or loss during delivery by our shipping vendors.

If our merchandise is not delivered in a timely fashion or is damaged or lost during the delivery process, our customers could become dissatisfied and cease shopping on our sites, which would adversely affect our business and operating results.

If we encounter problems with our ability to timely and satisfactorily fulfill customer orders, our ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies, we could have a material adverse effect on our business.

While we maintain business interruption and property insurance, in the event any of our distribution and fulfillment centers shut down for any reason or if we were to incur higher costs and longer lead times in connection with a disruption at our distribution and fulfillment centers, our insurance may not be sufficient to cover the impact to the business.

Measures intended to prevent the spread of COVID-19 may negatively impact our operations.

In response to the COVID-19 outbreak and the government mandates implemented to control its spread, most of our corporate office associates are working remotely.

If our associates are unable to work effectively as a result of the COVID-19 outbreak, including because of illness, quarantines, office closures, ineffective remote work arrangements or technology failures or limitations, our operations would be adversely impacted.

Further, remote work arrangements may increase the risk of cybersecurity incidents, data breaches or cyber-attacks, which could have a material adverse effect on our business and results of operations, due to, among other things, the loss of proprietary data, interruptions or delays in the operation of our business, damage to our reputation and any government-imposed penalty.

COVID-19 may negatively impact our international operations, including, but not limited to, our foreign sources of merchandise.

We have international operations in China, Canada, and Brazil, which may be adversely affected by the COVID-19 outbreak.

For example, all of the products we manufacture in the Brand Portfolio segment come from third-party facilities outside of the U.S., with 73% sourced from China during fiscal 2020, whereas our U.S.

Retail and Canada Retail merchandise is purchased from both domestic and foreign vendors.

Many of our domestic vendors import a large portion of their merchandise from abroad, with the majority manufactured in China.

The COVID-19 outbreak has led to work and travel restrictions within, to, and out of mainland China, which in turn may affect our manufacturers as well as our vendors’ manufacturers.

The COVID-19 outbreak also may make it difficult for our suppliers and our vendors’ suppliers to source raw materials from, manufacture goods in, and export products from China and other countries.

If the severity and reach of the COVID-19 outbreak continues or worsens, there may be significant and material disruptions to our supply chain and operations, which could have a material adverse effect on our financial position, results of operations, and cash flows.

The success of our Camuto Group business is dependent on the strength of our relationships with our retailer customers, and reductions in or loss of sales to such customers as a result of the COVID-19 outbreak could have a material adverse effect on our financial performance.

Our major retailer customers have experienced and may continue to experience a significant downturn in their businesses as a result of the COVID-19 outbreak and, in turn, these customers have and may continue to reduce their purchases from us, which has had and may continue to have a material adverse effect on the Brand Portfolio segment.

We may be unable to anticipate and respond to fashion trends, consumer preferences and changing customer expectations, which could have a material adverse effect on our business.

With our customers staying home more as a result of COVID-19, we believe that there will continue to be a clear shift in consumer behavior and corresponding preferences to increased demand for athleisure and casual products and away from dress and seasonal categories.

This requires us to anticipate and respond to numerous and fluctuating variables in fashion trends and other conditions in the markets in which our customers are situated.

A variety of factors will affect our ability to maintain the proper mix of products, including:

local economic conditions impacting customers' discretionary spending;

unanticipated fashion trends;

our ability to provide timely access to popular brands at attractive prices;

our success in distributing merchandise to our stores and our wholesale retailer customers in an efficient manner;

and changes in weather patterns, which, in turn, may affect consumer preferences.

If we are unable to anticipate trends and fulfill the merchandise needs of our customers, we may experience decreases in our net sales and may be forced to increase markdowns in relation to slow-moving merchandise, either of which could have a material adverse effect on our business.

Being an omni-channel retailer is a business necessity to meet customer experience expectations.

In the event that our omni-channel strategy does not meet customer expectations or is not differentiated from our competitors, it may have a material adverse effect on our business.

We rely on our strong relationships with vendors to purchase products.

If these relationships were to be impaired, we may be unable to obtain a sufficient assortment of merchandise at attractive prices or respond promptly to changing fashion trends, either of which could have a material adverse effect on our business and financial performance.

Our success depends, to a significant extent, on the willingness and ability of our vendors to supply us with merchandise that meets our changing customer expectations, especially as we concentrate our receipts to fewer branded vendors.

If we fail to maintain strong relationships with these vendors or if they fail to ensure the quality of merchandise they supply us, our ability to provide our customers with merchandise they want at favorable prices may be limited, which could have a negative impact on our business.

Decisions by vendors not to sell to us or to limit the availability of their products to us could have a negative impact on our business.

In addition, our inability to stock our sales channels with desired merchandise at attractive prices could result in lower net sales and decreased customer interest in our sales channels, which could have a material adverse effect on our business.

Further, if our merchandise costs increase due to increases incurred by our vendors in raw materials, energy, labor, or duties and taxes on imports, or other reasons, our ability to respond or the effect of our response could adversely affect our net sales or gross profit.

During fiscal 2020, three key third-party vendors together supplied approximately 22% of our retail merchandise.

For fiscal 2021, we expect these and other high-volume vendors to become more concentrated for our total purchases.

The loss of, or a reduction in, the amount and quality of merchandise supplied by any one of these vendors could have an adverse effect on our business.

In addition, any negative brand image, widespread product defects, or negative publicity related to these key vendors, or other vendors, could have a material adverse effect on our reputation and on our business.

Our ABL Revolver and Term Loan have restrictions that could limit our ability to fund operations, which could adversely affect our business.

The ABL Revolver contains a minimum availability covenant where an event of default shall occur if availability is less than the greater of $30.0 million or 10.0% o f the maximum credit amount.

The Term Loan includes a springing covenant imposing a minimum earnings before interest, taxes, depreciation, and amortization ("EBITDA") covenant, which arises when liquidity is less than $150.0 million.

In addition, the ABL Revolver and the Term Loan each contain customary covenants restricting our activities, including limitations on the ability to sell assets, engage in acquisitions, enter into transactions involving related parties, incur additional debt, grant liens on assets, pay dividends or repurchase stock, and make certain other changes.

There are specific exceptions to these covenants including, in some cases, upon satisfying specified payment conditions.

We are restricted from paying dividends or repurchasing stock until the third quarter of fiscal 2021 at the earliest, after which certain limitations apply.

Both the ABL Revolver and the Term Loan contain customary events of default with cross-default provisions.

Upon an event of default that is not cured or waived within the cure periods, in addition to other remedies that may be available to the lenders, the obligations may be accelerated, outstanding letters of credit may be required to be cash collateralized and remedies may be exercised against the collateral.

We use the ABL Revolver for borrowings and to secure letters of credit, both of which reduce the amount of available credit.

The actual amount that is available under the ABL Revolver fluctuates, due to factors including, but not limited to, eligible inventory and credit card receivables, reserve amounts, outstanding letters of credit, and outstanding borrowings.

Consequently, it is possible that, should we need to access any additional funds from our ABL Revolver, it may not be available in full.

Our international operations expose us to political, economic, operational, compliance and other risks.

We have international operations in various locations, including China, Canada, and Brazil.

The success of our international operations may be adversely affected by political, economic and social conditions beyond our control, local laws and customs, and legal and regulatory constraints, including compliance with applicable anti-bribery, anti-corruption, labor and currency laws and regulations.

Risks inherent in our existing and future operations also include, among others, public health threats, such as the COVID-19 outbreak, the costs and difficulties of managing operations outside of the U.S., possible adverse tax consequences from changes in tax laws or the unfavorable resolution of tax assessments or audits, and greater difficulty in enforcing intellectual property rights.

For example, we rely on manufacturers that operate outside the U.S., including China, and may disclose our intellectual property or other proprietary information to competitors or third parties, which could result in the distribution and sale of counterfeit versions of our products.

For example, we rely on manufacturers that operate outside the U.S., including China, Vietnam, and Brazil, who may disclose our intellectual property or other proprietary information to competitors or third parties, which could result in the distribution and sale of counterfeit versions of our products.

Additionally, foreign currency exchange rates and fluctuations may negatively impact our financial results.

Any of these events could have a material adverse effect on our business, financial condition, and results of operations.

We rely on our strong relationships with vendors to purchase brand name and designer merchandise at favorable prices.

If these relationships were to be impaired, we may not be able to obtain a sufficient assortment of merchandise at attractive prices, and we may not be able to respond promptly to changing fashion trends, either of which could have a material adverse effect on our business and financial performance.

Our success depends, to a significant extent, on the willingness and ability of our vendors to supply us with sufficient inventory to stock our sales channels as we generally do not have long-term supply agreements or exclusive arrangements with any vendors.

If we fail to maintain strong relationships with our existing vendors or if they fail to ensure the quality of merchandise they supply us, and if we cannot maintain or acquire new vendors of in-season brand name and designer merchandise, our ability to obtain a sufficient amount and variety of merchandise at favorable prices may be limited, which could have a negative impact on our business.

Decisions by vendors to not sell to us or to limit the availability of their products to us could have a negative impact on our business.

In addition, our inability to stock our sales channels with in-season merchandise at attractive prices could result in lower net sales and decreased customer interest in our sales channels, which could have a material adverse effect on our business.

During fiscal 2019 , three key third-party vendors together supplied approximately 21% of our retail merchandise.

The loss of, or a reduction in, the amount and quality of merchandise supplied by any one of these vendors could have an adverse effect on our business.

In addition, any negative brand image, wide-spread product defects, or negative publicity related to these key vendors, or other vendors, could have a material adverse effect on our reputation and on our business.

The success of the Camuto Group business is dependent on our third-party manufacturers and other business partners.

The success of the Camuto Group business depends on our ability to obtain products from our third-party manufacturers on a timely basis, on acceptable terms and to our specifications.

The success of our Camuto Group business is dependent on our third-party manufacturers and other business partners.

The success of our Camuto Group business depends on our ability to obtain products from our third-party manufacturers on a timely basis, on acceptable terms and to our specifications.

We do not exert direct control over the manufacturers' operations and cannot guarantee that any third-party manufacturer will have sufficient production capacity, meet our production deadlines or meet our product safety, social compliance, or quality standards.

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If these third-party manufacturers do not perform their obligations, cease working with us, fail to meet our product safety, social compliance or quality standards, or are unable to provide us with the materials and services we need at prices and terms that are acceptable to us, such disruptions may cause product delays and shortages, failure to deliver quality products to our customers on a timely basis, and damage to our reputation, which could have a material adverse impact on our business and results of operations.

The success of the Camuto Group business is dependent on the strength of our relationships with our retailer customers, and reductions in or loss of sales to such customers could have a material adverse effect on our business and financial performance.

The Camuto Group business is dependent on sales of branded, licensed and private-label footwear and accessories to customers, primarily department stores and other specialty retailers.

We typically do not have long-term contracts with our customers.

Sales to these customers are generally on an order-by-order basis and are subject to the rights of cancellation and rescheduling by the customer.

Failure to fill customers’ orders in a timely manner could harm our relationships with such customers.

If any of our major customers experience a significant downturn in its business, including impacts from a downturn in the global economy as a result of the COVID-19 threat or other threats, or fails to remain committed to our products or brands, such customers may reduce or discontinue purchases from us.

In addition, increased promotional activity by our wholesale customers could negatively impact the image of our brands and lead to reduced pricing or purchases of our products, which could have an adverse effect on our business.

The Camuto Group business has four retailer customers that make up approximately 60% of its total net sales, and the loss of any or all of these customers would have a material adverse effect on the Brand Portfolio segment.

The loss or disruption of any of our distribution or fulfillment centers could have a material adverse effect on our business and operations.

Our inventory can also be shipped directly from our fulfillment center, also located in Columbus, Ohio, and supported by a third-party service provider, to our customers.

For our Canada Retail segment, we engage a logistics service provider to receive purchases and distribute to our stores.

Through our ship from store capability, both in the U.S.

and in Canada, inventory is shipped directly from our stores to customers.

Through our drop ship program, inventory is shipped from the vendor's warehouse directly to the customer.

For our Brand Portfolio segment, the majority of our inventory is shipped directly from factories to our distribution center in Westampton, New Jersey, where our wholesale inventory is then processed, sorted and provided to our customers' shipping carriers.

We may not anticipate all the changing demands that our expanding operations will impose on our receiving, distribution, and fulfillment system, and events beyond our control, such as disruptions in operations due to public health threats, such as the COVID-19 outbreak, integration of new stores or customers, catastrophic events, labor disagreements, or shipping problems, that may result in delays in the delivery of merchandise to our stores and customers.

We are dependent on our customer loyalty programs and marketing to drive traffic, sales and loyalty, and any decrease in membership or purchases from members could have a material adverse effect on our business.

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Loyalty members earn points toward discounts on future purchases through our VIP rewards programs in the U.S.

Members also receive promotional offers and gifts with purchase offers.

We employ a variety of marketing methods, including email, direct mail and social media, to communicate exclusive offers to our rewards members.

We have approximately 32 million members enrolled in our loyalty programs who have made at least one purchase over the last two years.

As of January 30, 2021, we have approximately 30 million members enrolled in our loyalty programs who have made at least one purchase over the last two years.

In fiscal 2020, shoppers in the loyalty programs generated approximately 84% of the combined U.S.

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In the event that our rewards members do not continue to shop, we fail to add new members, the number of members decreases, or our marketing is not effective in driving customer traffic, such event could have a material adverse effect on our business.

We may be unable to anticipate and respond to fashion trends, consumer preferences and changing customer expectations, which could have a material adverse effect on our business.

Our merchandising strategy is based on offering the proper mix of products available to our customers, including our retailer customers.

This requires us to anticipate and respond to numerous and fluctuating variables in fashion trends and other conditions in the markets in which our customers are situated.

A variety of factors will affect our ability to maintain the proper mix of products, including:

local economic conditions impacting customers' discretionary spending;

unanticipated fashion trends;

our ability to provide timely access to in-season merchandise at attractive prices;

our success in distributing merchandise to our stores and our wholesale retailer customers in an efficient manner;

and changes in weather patterns, which in turn affect consumer preferences.

If we are unable to anticipate and fulfill the merchandise needs of our customers, we may experience decreases in our net sales and may be forced to increase markdowns in relation to slow-moving merchandise, either of which could have a material adverse effect on our business.

Being an omni-channel retailer is a business necessity to meet customer experience expectations and an opportunity to create a competitive advantage as our customers expect to be able to shop across multiple sales channels.

In the event that our omni-channel strategy does not meet customer expectations or is not differentiated from our competitors, it may have a material adverse effect on our business.

Our failure to retain our existing senior management team and to continue to attract qualified new personnel could adversely affect our business.

Our failure to retain our existing senior management team and to continue to attract qualified new personnel could have a material adverse effect our business.

Our business requires disciplined execution at all levels of our organization, which requires an experienced and talented management team.

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We have entered into employment agreements with several key executives and also offer compensation packages designed to attract and retain talent.

Furthermore, our ability to manage our expansion will require us to continue to train, motivate and develop our employees to maintain a high level of talent for future challenges and succession planning.

Furthermore, our ability to manage our business will require us to continue to train, motivate and develop our associates to maintain a high level of talent for future challenges and succession planning.

Competition for these types of personnel is intense, and we may not be successful in attracting and retaining the personnel required to grow and operate our business.

The loss or disruption of information technology services could affect our ability to implement our growth strategy and have a material adverse effect on our business.

Our information technology systems are an integral part of our growth strategy in efficiently operating and expanding our business, in managing operations and protecting against security risks related to our electronic processing and transmitting of confidential customer and associate data.

The loss or disruption of information technology services could affect our ability to implement our strategies and have a material adverse effect on our business.

Our information technology systems are an integral part of our strategies in efficiently operating our business, in managing operations and protecting against security risks related to our electronic processing and transmitting of confidential customer and associate data.

The requirements to keep our information technology systems operating at peak performance may be higher than anticipated and could strain our capital resources, management of any system upgrades, implementation of new systems and the related change management processes required with new systems and our ability to prevent any future information security breaches.

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While we maintain business interruption and property insurance, in the event of a data center shutdown, our insurance may not be sufficient to cover the impact to the business.

We accept orders through our e-commerce channels and are subject to various risks of operating online and mobile selling capabilities such as:

the failure of our information technology infrastructure, including any third-party hardware or software, resulting in downtime or other technical issues;

difficulty in integrating acquired businesses;

Our e-commerce operations are important to our business and are subject to various risks of operating online and mobile selling capabilities such as the failure of our information technology infrastructure, including any third-party hardware or software, resulting in downtime or other technical issues;

reliance on third-party logistics providers to deliver our products to customers;

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or other information security breaches.

Failure to mitigate these risks could have a material adverse effect on our business.

Failure to mitigate these risks could reduce e-commerce sales, damage our reputation, and have a material adverse effect on our business.

We face security risks related to our electronic processing of sensitive and confidential personal and business data.

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Given the nature of our business, we collect, process and retain sensitive and confidential customer and associate data, in addition to proprietary business information.

Some of our third-party service providers, such as identity verification and payment processing providers, also regularly have access to customer data.

Additionally, we maintain other confidential, proprietary, or otherwise sensitive information relating to our business and from third parties.

We may be vulnerable to a data compromise, computer viruses, physical and electronic break-ins, and similar disruptions, which may not be prevented by our efforts to secure our computer systems.

Security measures in place include, but are not limited to, vulnerability scanning and patching, web-application firewalls, reverse-proxies, network firewalls, two-factor authentication, identity and access management, data encryption, point-to-point encryption and tokenization, intrusion detection and prevention devices, endpoint detection and response software, and data

loss prevention software.

Regular penetration tests of our networks are conducted by a third-party service provider and we leverage any findings to further enhance our security.

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Our critical data is replicated and backed up to a separate secured data center.

However, our efforts may not be able to prevent rapidly evolving types of cyber-attacks and a successful breach of our computer systems could result in misappropriation of personal, payment or sensitive business information.

However, our efforts may not be able to prevent rapidly evolving types of cyberattacks and a successful breach of our computer systems could result in misappropriation of personal, payment or sensitive business information.

In addition, we rely on associates, contractors and other third parties who may attempt to circumvent our security measures in order to obtain such information and may purposefully or inadvertently cause a breach involving such information.

Actual or anticipated attacks, as well as the integration of new or existing systems of acquired businesses, may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train employees, pay higher insurance premiums, and engage third-party specialists for additional services.

An information security breach involving confidential and personal data could damage our reputation and our customers' willingness to shop in our stores or through our e-commerce platforms.

Actual or anticipated attacks may cause us to incur increasing costs, including costs to deploy additional personnel and protection technologies, train associates, pay higher insurance premiums, and engage third-party specialists for additional services.

An information security breach involving confidential and personal data could damage our reputation and our customers' willingness to purchase from us.

In addition, we may incur material liabilities and remediation costs as a result of an information security breach, including potential liability for stolen customer or associate data, repairing system damage or providing credit monitoring or other benefits to customers or associates affected by the breach.

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Although we have developed mitigating security controls to reduce our cyber risk and protect our data from loss or disclosure due to a security breach, including processes designed to reduce the impact of a security breach at a third-party vendor, such measures cannot provide absolute security.

We and our third-party service providers regularly experience cyberattacks aimed at disrupting services.

If we or our third-party service providers experience security breaches that result in marketplace performance, availability problems, or the loss, corruption of, unauthorized access to, or disclosure of personal data or confidential information, people may become unwilling to provide us the information necessary to make purchases on our sites and our reputation and market position could be harmed.

Existing customers may also decrease their purchases or close their accounts altogether.

We could also face potential claims, investigations, regulatory proceedings, liability and litigation, and bear other substantial costs in connection with remediating and otherwise responding to any data security breach, all of which may not be adequately covered by insurance, and which may result in an increase in our costs for insurance or insurance not being available to us on economically feasible terms, or at all.

Insurers may also deny us coverage as to any future claim.

Any of these results could harm our growth prospects, financial condition, business and reputation.

Our failure to comply with privacy laws and regulations, as well as other legal obligations, could have a material adverse effect on our business.

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Such events may increase our expenses, expose us to liabilities and impair our reputation, which could have a material adverse effect on our business.

If Stein Mart were to terminate our supply agreement, close a significant number of stores or liquidate, such event could have a material adverse effect on our business and financial performance.

We currently provide services through ABG to 282 Stein Mart stores and Steinmart.com through ongoing supply arrangements.

Our contractual termination date for the supply agreement with Stein Mart is January 2021 .

Stein Mart has disclosed in its public filings that COVID-19 has adversely impacted their near-term revenues, earnings, liquidity and cash flows, and has required significant actions in response, including but not limited to, employee furloughs and store closings, all in an effort to mitigate such impacts.

The extent of the impact of COVID-19 on their business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., the impact on capital and financial markets and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted.

Stein Mart also disclosed that continued prolonged store closure would impact their assessment of whether there is substantial doubt about their ability to continue as a going concern within one year after the date that their financial statements are issued and, based on their assessment, could result in the conclusion that substantial doubt exists.

If Stein Mart were to terminate our supply agreement, close a significant number of stores or liquidate, such event could have a material adverse effect on our business and financial performance.

Our retail growth strategies could strain our resources and have a material adverse effect on our business and financial performance.

Our growth strategy in part depends on our ability to successfully open and operate new stores on a profitable basis, as well as expand the product lines and services we offer.

We also continue to invest in our digital capabilities in order to deliver a high-quality, coordinated shopping experience for our customers, which requires substantial investment in technology.

This continued growth could place increased demands on our financial, managerial, operational and administrative resources.

We may not achieve our planned growth on a timely and profitable basis or achieve results in new locations similar to those

achieved in existing locations in prior periods.

In addition, the growth in digital demand could result in a diversion of traffic from our stores.

Our ability to open and operate new stores on a timely and profitable basis depends on many factors, including our ability to identify suitable markets and sites for new store locations with financially stable co-tenants and landlords;

negotiate acceptable lease terms;

build-out or refurbish sites on a timely and effective basis;

obtain sufficient financing and capital resources or generate sufficient cash flows from operations to fund growth;

open new stores at costs not significantly greater than those anticipated;

successfully open new stores in markets in which we currently have few or no stores;

control the costs of other capital investments associated with store openings;

hire, train and retain qualified managers and store personnel;

and successfully integrate new stores into our existing infrastructure, operations, management and distribution systems or adapt such infrastructure, operations and systems to accommodate our growth.

As a result, we may be unable to open new stores at the rates expected or at all.

If we fail to successfully implement our growth strategy, the opening of new stores could be delayed or prevented, could cost more than anticipated and could divert resources from other areas of our business, any of which could have a material adverse effect on our business.

To the extent that we open new stores in our existing markets, we may experience reduced net sales in existing stores in those markets.

As our store base increases, our stores will become more concentrated in the markets we serve.

As a result, the number of customers and financial performance of individual stores may decline and the average sales per square foot at our stores may be reduced, which could have a material adverse effect on our business.

Further, changing local demographics at existing store locations may adversely affect financial performance at those stores.

If we determine to close or relocate a store subject to a lease, we may remain obligated under the applicable lease for the balance of the lease term.

Initiatives to introduce new product and service offerings are designed to create growth and improve financial results.

New product lines and services may not achieve or sustain profitability or market acceptance at levels sufficient to justify our investment, which could have a material adverse effect on our business.

As we introduce enhancements to our point-of-sale ("POS") and e-commerce platforms or migrate to new platforms, we could experience downtime or other technical issues, which could have a material adverse effect on our business.

Our acquisition activity could disrupt our ongoing business and adversely impact our results of operations.

On May 10, 2018 , we acquired the remaining interest in TSL and on November 5, 2018 , we completed the acquisition of Camuto Group.

The integration efforts for acquired businesses may disrupt our existing business or divert the attention of our management.

Achieving the expected benefits depends in large part on our successful and timely integration of operations, systems, policies and procedures, and personnel of the acquired businesses.

For example, we cannot ensure that Camuto Group will successfully be able to manage the additional volume of the retail segments' exclusive branded products transitioned to it.

We cannot ensure that all of our integration efforts will be completed on a timely basis, as planned, or without substantial expense, delay or other operational problems.

Until we make substantial progress with our integration efforts, we also face the risk that we may not be able to effectively manage the business and achieve planned results.

We may be hindered by having limited system and reporting capabilities.

Our operating results or financial condition may be adversely impacted by pre-existing claims or liabilities, both known and unknown.

In addition, the integration process may strain our financial and managerial controls, reporting systems and procedures, and may also result in the diversion of management and financial resources from core business objectives.

There can be no assurance that we will successfully integrate our businesses or that we will realize the anticipated benefits of the acquisitions after we complete our integration efforts.

Our failure to protect our reputation could have a material adverse effect on our brands.

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Public perception about us or the products we carry, whether justified or not, could impair our reputation, involve us in litigation, damage our brand and have a material adverse effect on our business.

The reputation and competitive position for the Camuto Group business are dependent on our ability to maintain the brands we license.

The reputation and competitive position for our Camuto Group business are dependent on our ability to maintain the brands we license.

In partnership with Authentic Brands Group LLC, a global brand management and marketing company, we formed ABG-Camuto, a joint venture in which we have a 40% interest.

This joint venture acquired several intellectual property rights from the Sellers, including Vince Camuto, Louise et Cie, Sole Society, CC Corso Como, and others, and focuses on licensing and developing new category extensions to support the global growth of these brands.

This joint venture acquired several intellectual property rights, including Vince Camuto, Louise et Cie, and others, and focuses on licensing and developing new category extensions to support the global growth of these brands.

ABG-Camuto has entered into a licensing agreement with us, which will earn royalties from the net sales of Camuto Group under the brands acquired.

In addition, we hold footwear licenses of Jessica Simpson, Lucky Brand, Max Studio, and, through a joint venture, Jennifer Lopez.

In addition, we own footwear, and in some cases handbag, licensing rights of Jessica Simpson, Lucky Brand, and, through a joint venture, Jennifer Lopez.

We rely on our ability to retain and maintain good relationships with the licensors and their ability to maintain strong, well-recognized brands and trademarks.

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Furthermore, many of our license agreements require minimum royalty payments, and if we are unable to generate sufficient sales and profitability to cover these minimum royalty requirements, we may be required to make additional payments to the licensors, which could have a material adverse effect on our business and results of operations.

We are constantly exploring new business opportunities and implementing initiatives.

The failure to successfully execute our strategies may have a material adverse effect on our business, results of operations or financial condition.

We have expanded our products and markets in part through strategic acquisitions and we may continue to do so in the future.

The continued development and implementation of new business opportunities and strategies involve numerous risks, including risks inherent in entering markets in which we may not have prior experience, and could distract management from our core business.

In the event that we lose focus on our core business or are unsuccessful in the execution of our concept, it may have a material adverse effect on our business, results of operations or financial condition.

We are exposed to foreign tax contingencies as a result of the acquisition of Camuto Group, which could have a material adverse effect on our financial performance.

During the due diligence procedures performed related to the acquisition of Camuto Group, we identified probable contingent liabilities associated with unpaid foreign payroll and other taxes that could also result in assessed penalties and interest.

We have developed an estimate of the range of outcomes related to these obligations of $28.1 million to $40.0 million for obligations we are aware of at this time.

We are continuing to assess the exposure, which may result in material changes to these estimates, and we may identify additional contingent liabilities.

We believe that the Sellers are obligated to indemnify us for any payments to foreign taxing authorities for the periods up to the acquisition date.

Although a portion of the purchase price is held in escrow and another portion is held in a restricted bank account, there can be no assurance that we will successfully collect all amounts that we may be obligated to settle with the foreign taxing authorities.

Our sales and quarterly financial performance may fluctuate for a variety of reasons, including seasonal variability.

Our business is sensitive to consumer spending patterns, which in turn are subject to prevailing regional and national economic conditions and the general level of economic activity.

Our comparable sales and quarterly results of operations have fluctuated in the past, and we expect them to continue to fluctuate in the future.

A variety of other factors affect our sales and quarterly financial performance, including:

uncertain macro-economic conditions and changes in the retail sales environment;

changes in our merchandising strategy;

timing and concentration of new store openings and related start-up costs;

expenses associated with new stores, our omni-channel strategy and marketing expenses;

changes in our merchandise mix;

changes in and regional variations in demographic and population characteristics;

timing of promotional events;

seasonal fluctuations due to weather conditions;

and actions by our competitors.

Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable sales for any particular future period may increase or decrease.

Our future financial performance may fall below the expectations of securities analysts and investors, which may adversely impact the price of our common shares.

In addition, our business is subject to seasonal merchandise trends when our customers' interest in new seasonal styles increases.

New spring styles are introduced in the first quarter and new fall styles are introduced in the third quarter.

As a result of seasonal merchandise trends, any factors negatively affecting us during these periods, including adverse weather, the timing and level of markdowns, fashion trends or unfavorable economic conditions, could have a material adverse effect on our business.

Risks Relating to the External Environment

Uncertain economic conditions and other events in the U.S.

and other countries in which we operate can adversely affect consumer confidence and consumer spending habits, which could result in reduced net sales.

Consumer spending habits, including spending for the footwear and accessories that we sell, are affected by, among other things, prevailing economic conditions;

levels of employment;

salaries and wage rates;

prevailing interest rates;

income tax rates and policies;

consumer confidence;

and consumer perception of economic conditions.

In addition, consumer purchasing patterns may be influenced by consumers' disposable income.

Consumer confidence can also be affected by the domestic or international political environment.

The outbreak or escalation of war, natural disasters, public health threats, such as the COVID-19 outbreak, or the occurrence of terrorist acts or other hostilities in or affecting the U.S.

or other countries in which we operate, could lead to a decrease in spending by consumers.

In an economic slowdown, we could experience lower net sales than expected on a quarterly or annual basis and be forced to delay or slow our expansion plans.

Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses.

These negative economic conditions could have a material adverse effect on our business.

We rely on consumer discretionary spending, which may be adversely affected by economic downturns and other macroeconomic conditions or trends and/or exacerbated as a result of the COVID-19 pandemic.

Our business and operating results are subject to global economic conditions and their impact on consumer discretionary spending.

Many factors that may negatively influence consumer spending are becoming increasingly present as a result of COVID-19 and political instability, including high levels of unemployment, higher consumer debt levels, reductions in net worth, declines in asset values and related market uncertainty, fluctuating interest rates and credit availability, fluctuating fuel and other energy costs, general uncertainty regarding the overall future political and economic environment, and recent large-

scale social unrest across much of the U.S.

Consumer purchases of discretionary items, including our products, generally decline during periods of economic uncertainty, when disposable income is reduced or when there is a reduction in consumer confidence.

Additionally, any of these adverse economic, political or social conditions may have the effect of directly or indirectly impacting our operating results in a negative manner.

Moreover, we are unable to predict the severity of macroeconomic uncertainty, whether or when such circumstances may improve or worsen, or the full impact such circumstances could have on our business.

We may be unable to compete in our highly competitive market, which could have a material adverse effect on our business.

The footwear market is highly competitive with few barriers to entry.

We compete against a diverse group of manufacturers and retailers, both small and large, including department stores, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, online shoe retailers, brand-oriented discounters, multi-channel specialty retailers and brand suppliers.

We compete against a diverse group of manufacturers and retailers, including department stores, mall-based shoe stores, national chains, independent shoe retailers, single-brand specialty retailers, online shoe retailers, brand-oriented discounters, multi-channel specialty retailers and brand suppliers.

In addition, our wholesale retailer customers sell shoes purchased from competing footwear suppliers with owned and licensed brands that are well known.

Many of these suppliers invest significantly in marketing their brands.

Our success depends on our ability to remain competitive with respect to assortment, quality, convenience and value.

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Competitors with other revenue sources may also be able to devote more resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote more resources to websites, mobile platforms and applications and systems development.

Our business may be adversely affected if we are unable to provide our customers cost-effective shopping platforms that are able to respond and adapt to rapid changes in technology.

The number of people who access the Internet through devices other than personal computers, including mobile phones, smartphones, handheld computers such as notebooks and tablets, video game consoles, and television set-top devices, has increased dramatically in the past few years.

The smaller screen size, functionality, and memory associated with some alternative devices may make the use of our sites and purchasing our products more difficult.

The versions of our sites developed for these devices may not be compelling to consumers.

In addition, it is time consuming and costly to keep pace with rapidly changing and continuously evolving technology.

We cannot be certain that our mobile applications or our mobile-optimized sites will be successful in the future.

As existing mobile devices and platforms evolve and new mobile devices and platforms are released, it is difficult to predict the problems we may encounter in adjusting and developing applications for changes and alternative devices and platforms, and we may need to devote significant resources to the creation, support and maintenance of such applications.

If we are unable to attract customers to our websites through these devices or are slow to develop versions of our websites that are more compatible with alternative devices or a mobile application, we may fail to capture a significant share of customers, which could have a material adverse effect on our business.

Further, we continually upgrade existing technologies and business applications, and we may be required to implement new technologies or business applications in the future.

The implementation of upgrades and changes requires significant investments.

Our results of operations may be affected by the timing, effectiveness and costs associated with the successful implementation of any upgrades or changes to our systems and infrastructure.

In the event that it is more difficult for our customers to buy products from us on their mobile devices, or if our customers choose not to buy products from us on their mobile devices or to use mobile products that do not offer access to our websites, our customer growth could be harmed, which could have a material adverse effect on our business, financial condition and operating results.

We rely on foreign sources for our merchandise, and our business is therefore subject to risks associated with international trade.

All of the products we manufacture in the Brand Portfolio segment come from third-party facilities outside of the U.S., with 83% sourced from China, whereas our U.S.

Retail and Canada Retail merchandise is purchased from both domestic and foreign vendors.

Many of our domestic vendors import a large portion of their merchandise from abroad, with the majority manufactured in China.

For this reason, we face risks inherent in purchasing from foreign suppliers, such as:

public health threats, such as the COVID-19 outbreak, economic and political instability in countries where these suppliers are located;

We face risks inherent in purchasing from foreign suppliers, such as:

public health threats, including the COVID-19 outbreak;

economic and political instability in countries where these suppliers are located;

international hostilities or acts of war or terrorism affecting the U.S.

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and local business practices, including compliance with foreign laws and with domestic and international labor standards.

COVID-19 has led to work and travel restrictions within, to, and out of mainland China, which in turn has led to delays in workers returning, which may affect our and our vendors’ manufacturers.

This viral outbreak may make it difficult for our suppliers and our vendors’ suppliers to source raw materials in China and other countries, manufacture goods in such countries, and export our products from such countries.

If the severity and reach of the COVID-19 outbreak continues or increases, there may be significant and material disruptions to our supply chain and operations, and disruptions in the manufacture, shipment, and sale of our products.

Such events may increase our costs and disrupt our operations, which could have a material adverse effect on our business, financial condition, and results of operations.

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The violation of labor or other laws by one of our vendors could have a material adverse effect on our business.

The imposition of increased or new tariffs on our products could have a material adverse effect on our business and financial performance.

government has placed tariffs on certain goods imported from China and may impose new tariffs on goods imported from China and other countries, including footwear and other products that we import.

In retaliation, China has responded by imposing tariffs on a wide range of products imported from the U.S.

and by adjusting the value of its currency.

If renegotiations of existing tariffs are unsuccessful or additional tariffs or trade restrictions are implemented by the U.S.

or other countries in connection with a global trade war, the resulting escalation of trade tensions could have a material adverse effect on world trade and the global economy.

While it is still too early to predict whether or how the ongoing tariff negotiations between the U.S.

and China will impact our business, the imposition of tariffs on footwear or other items imported by us from China could require us to increase prices to our customers or, if unable to do so, result in lowering our gross margin on products sold, which could have a material adverse effect on our business and financial performance.

Alternatively, we may seek to shift production outside of China, resulting in significant costs and disruption to our business.

Even in the absence of further tariffs or trade restrictions, the related uncertainty and the market's fear of an economic slowdown could lead to a decrease in consumer spending and we may experience lower net sales than expected.

Reduced net sales may result in reduced operating cash flows if we are not able to appropriately manage inventory levels or leverage expenses.

Uncertainty in future changes to tax legislation, regulatory reform or policies could have a material adverse effect on our business.

Tax laws, regulations, and policies in various jurisdictions may be subject to significant change due to economic, political and other conditions.

tax reform legislation, referred to as the Tax Cuts and Jobs Act of 2017 (the "U.S.

Tax Reform"), significantly changed how the U.S.

taxes corporations and requires complex computations to be performed that were not previously required in U.S.

Treasury Department, the U.S.

Internal Revenue Service, and other standard-setting bodies could interpret or issue guidance on how provisions of the U.S.

Tax Reform will be applied or otherwise administered that is different from our interpretation.

In addition, state, local or foreign jurisdictions may enact tax laws in response to the U.S.

Tax Reform that could result in further changes to taxation and materially affect our financial position and results of operations.

Our cash and investments are subject to risks that could affect the liquidity of these investments.

As of February 1, 2020 , we had cash and cash equivalents and investments of $111.5 million .

and global markets resulting from COVID-19.

A portion of these are held as cash in operating accounts that are with financial institutions.

While we regularly monitor the cash balances in our operating accounts and when possible adjust the balances as appropriate to be within Federal Deposit Insurance Corporation insurance limits, these cash balances could be lost or inaccessible if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.

While we generally invest in lower risk investments, investment risk has been and may further be exacerbated by credit and liquidity issues that have affected various sectors of the financial markets.

Our access to cash and investments, their earning potential or our ability to invest in highly rated, low risk investments may be impacted by adverse conditions in the U.S.

financial markets.

These market risks associated with our cash and investments could have a material adverse effect on our business.

We are exposed to foreign currency risk.

We are primarily exposed to the impact of foreign exchange rate risk through our Canadian business where the functional currency is the Canadian dollar ("CAD").

Currency translation adjustments are included in accumulated other comprehensive loss.

We also hold cash denominated in CAD with foreign currency exchange gains or losses recorded to income.

The impact of all other foreign currencies is immaterial to our financial results and we currently do not utilize hedging instruments to mitigate foreign currency exchange risks.

Legislative or regulatory initiatives related to climate change could have a material adverse effect on our business.

Greenhouse gases may have an adverse effect on global temperatures, weather patterns, and the frequency and severity of extreme weather and natural disasters.

Such events could have a negative effect on our business.

Concern over climate change may result in new or additional legislative and regulatory requirements to reduce or mitigate the effects of climate change on the environment, which could result in future tax, transportation, and utility increases, which could have a material adverse effect our business.

There is also increased focus, including by investors, customers, and other stakeholders, on these and other sustainability matters, including the use of plastic, energy, waste, and worker safety.

Our reputation could be damaged if we do not, or are perceived to not, act responsibly with respect to sustainability matters, which could also have a material adverse effect on our business, results of operations, financial position, and cash flows.

Uncertainty in future changes to legislation, regulatory reform or policies could have a material adverse effect on our business.

Tax laws, tariff, regulations, and policies in various jurisdictions may be subject to significant change due to economic, political and other conditions.

Such changes, including additional taxes and tariffs, may result in additional costs to our business and could require us to increase prices to our customers or, if unable to do so, result in a material adverse effect on our financial performance.

Risks Relating to our Common Shares

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Because the Class B common shares are not listed on a securities exchange or an automated quotation system, it may be difficult to obtain pricing information with respect to the shares.

Accordingly, there may be a limited number of buyers if a holder decided to sell their Class B common shares.

Accordingly, there may be a limited number of buyers if a holder decided to sell its Class B common shares.

This may affect the price a holder would receive upon such sale.

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shareholder votes, and their interests may differ from other shareholders.

As of February 1, 2020 , the Schottenstein Affiliates have approximately 52% of the voting power of the Company's outstanding common shares.

As of January 30, 2021, the Schottenstein Affiliates have approximately 52% of the voting power of the Company's outstanding common shares.

The Schottenstein Affiliates directly control or substantially influence the outcome of matters submitted to Designer Brands Inc.'s shareholders for approval, including the election of directors, approval of mergers or other business combinations, and acquisitions or dispositions of assets.

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Our amended and restated articles of incorporation provide that the Schottenstein Affiliates are under no obligation to communicate or offer any corporate opportunity to us.

In addition, the Schottenstein Affiliates have the right to engage in similar activities as us, do business with our suppliers and customers, and, except as limited by agreement, employ or otherwise engage any of our officers or employees.

Furthermore, as a "controlled company" within the meaning of The New York Stock Exchange ("NYSE") rules, the Company qualifies for and, in the future, may opt to rely on, exemptions from certain corporate governance requirements, including having a majority of independent directors, as well as having nominating and corporate governance and compensation committees composed entirely of independent directors.

Furthermore, as a "controlled company" within the meaning of the New York Stock Exchange (the "NYSE") rules, the Company qualifies for and, in the future, may opt to rely on, exemptions from certain corporate governance requirements, including having a majority of independent directors, as well as having nominating and corporate governance and compensation committees composed entirely of independent directors.

UNRESOLVED STAFF COMMENTS

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors