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Item 1A. Risk Factors

2022-03-21 compared with 2021-03-22 · 166 added, 133 removed, 131 unchanged (70% of the section changed)

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 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.

Investing in our Class A common shares involves a high degree of risk.

In addition to the other information in this Form 10-K and in our other public filings, investors should carefully consider the following risk factors.

The risks described below are not the only ones facing us.

The occurrence of any of the following risks, or the occurrence of additional risks and uncertainties not presently known to us or that we currently believe to be immaterial, could materially and adversely affect our business, financial condition or results of operations.

In such case, the trading price of our Class A common shares could decline, and investors may lose all or part of their original investment.

This Form 10-K also contains forward-looking statements and estimates that involve risks and uncertainties.

Our actual results could differ materially from those anticipated in the forward-looking statements and estimates as a result of specific factors, including the risks and uncertainties described below.

RISKS RELATING TO MACROECONOMIC AND INDUSTRY CONDITIONS

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

The COVID-19 pandemic has negatively impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets.

The COVID-19 pandemic has had an adverse impact on our business and financial performance, particularly in 2020, and we expect this adverse impact to continue.

The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future developments, including the duration, severity and any resurgences of the COVID-19 pandemic, which are uncertain and cannot be predicted.

For instance, we have continued to experience reduced store traffic and net sales as compared to pre-COVID-19 periods, and it is unclear when customer behavior will return to pre-COVID-19 patterns, if at all.

The ongoing and prolonged nature of the COVID-19 pandemic may lead to further adjustments to our operations.

As such, the ultimate impacts of the COVID-19 pandemic on our businesses will depend on future developments, including the availability of labor, global supply chain disruptions, new emerging variants of COVID-19 and the severity thereof, and the global availability and use of vaccines or palliatives, all of which are highly uncertain and cannot be predicted.

As a result, we may have future write-downs or adjustments to inventories, receivables, long-lived assets, intangibles, goodwill, and the valuation allowance on deferred tax assets.

The COVID-19 pandemic also has the potential to significantly impact our supply chain if the factories that manufacture our products, the distribution systems we use to manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed or experience worker shortages.

All of the products manufactured through the Brand Portfolio segment come from third-party facilities outside of the U.S., with 75% sourced from China during 2021, whereas our U.S.

Retail segment and Canada Retail segment 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.

The COVID-19 pandemic 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 pandemic may also 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 pandemic 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.

We rely on consumer discretionary spending, which may be adversely affected by economic downturns and other macroeconomic conditions or trends, and/or negatively impacted 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 the COVID-19 pandemic and political instability, including high levels of instability in the job market, higher consumer debt levels, reductions in net worth, declines in certain 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, recent large-scale social unrest across much of the U.S., international turmoil and conflicts, war, terrorism, geopolitical uncertainties, trade policies and sanctions.

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.

Our industry is subject to cost and pricing pressures that may be exacerbated by the impacts of inflation, which could have a

material adverse effect on our business and operations.

The retail industry is subject to cost and pricing pressures and uncertainties throughout the supply chain.

Pricing pressure has been exacerbated by the variability and availability of raw materials in recent months, combined with labor and cost inflation and uncertainty throughout the supply chain.

These factors could require us to enact mitigating pricing actions and operating efficiency measures that could have a material adverse effect on customer demand.

RISKS RELATING TO OUR BUSINESS AND OPERATIONS

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

Demand for our products fluctuates according to changes in consumer preferences and trends, which are dictated by lifestyle, fashion and season, and may shift quickly.

As a result of the COVID-19 pandemic, our business experienced a shift in consumer behavior and corresponding preferences to increased demand for athleisure and casual products and away from dress and seasonal categories.

This shift 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:

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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.

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

As we look ahead to our strategic growth initiatives, we have organized our efforts around three pillars:

• Customer- We are focused on offering great products and differentiated experiences in order to drive customer engagement and loyalty.

• Brand- We will continue to prioritize growing our own brands while also partnering with some of the top brands in the industry in order to offer one of the largest assortments.

• Speed- We are exploring improved processes to deliver products to our customers more quickly.

Achieving these priorities depends in part on us executing our strategies successfully, and the initiatives that we implement in connection with these strategies may not resonate with our customers.

We may not be able to realize, in whole or in part, the anticipated benefits of these strategies or within the expected time frames.

In the event that our strategies do not meet customer expectations or are not differentiated from our competitors' offerings, it may have a material adverse effect on our business.

In addition, these efforts could place increased demands on our financial, managerial, operational, and administrative resources.

We are investing in additional resources, both capital and personnel, and will be implementing new systems and processes or changes to existing systems and processes.

These investments could cost more than anticipated, divert resources from other areas of our business, and fail to yield the anticipated benefits, any of which could have a material adverse effect on our business.

We could also experience downtime or other technical issues as we make changes to our systems and processes, which could have a material adverse effect on our business.

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

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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.

If we fail to maintain strong relationships with these vendors or if they fail to ensure the quality of merchandise that they supply to 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.

In addition, our merchandise costs have increased and may increase further due to increased costs incurred by our vendors in raw materials, energy, labor, freight, 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.

Further, any negative brand image, widespread product defects, financial distress, or negative publicity related to our key vendors, or other vendors, could have a material adverse effect on our reputation and 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, 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.

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.

During 2021, three key third-party vendors together supplied approximately 20% of our retail merchandise, with no individual vendor providing more than 10% of our retail merchandise.

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

For example, one of these top three vendors, Nike, Inc., ceased shipping products to us during the third quarter of 2021.

In order to replace this brand, we are expanding and concentrating our volume of exclusive branded products, wholesale products from our Brand Portfolio segment, and with other high-volume vendors.

If we are unable to offer suitable alternatives to satisfy product demand, sales could decline which could have a material adverse effect on our operating results.

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

We may not anticipate all the changing demands on our operations, and events beyond our control may occur, including disruptions in operations due to public health threats, such as the COVID-19 pandemic, delays in the integration of new stores, catastrophic events, shortages in labor, 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, the COVID-19 pandemic has resulted in delays at ports due to shipping backlog, availability of vessels, capacity constraints, and other disruptions.

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

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 could 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, and complete sales, such problems could have a material adverse effect on our business.

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

The success of our Brand Portfolio segment is dependent on our third-party manufacturers and other business partners.

The success of our Brand Portfolio segment 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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In addition, we cannot predict the impact of global events such as inclement weather, natural disasters, public health threats, or acts of terrorism.

Our manufacturers operate outside the U.S.

and are also subject to additional risks associated with international trade, as discussed in more detail in other risk factors herein.

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 our Brand Portfolio segment 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 ongoing COVID-19 pandemic 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 ongoing COVID-19 pandemic and, in turn, these customers have reduced, 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 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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As of January 29, 2022, we have approximately 28 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.

In 2021, shoppers in the loyalty programs generated approximately 87% of the combined U.S.

Retail and Canada Retail segments' net sales.

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.

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

In addition, any significant disruption of our data center could have a material adverse effect on those operations dependent on those systems, specifically, our store and e-commerce operations, our distribution and fulfillment centers and our merchandising team.

In addition, any significant disruption of our data center could have a material adverse effect on those operations dependent on those systems, specifically, our store and e-commerce operations, our distribution centers and fulfillment center and our merchandising team.

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.

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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.

If we are unable to protect our data, a security breach could damage our reputation and have a material adverse effect on our business.

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

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

If such data are lost or disclosed in an unauthorized manner, or if we or our third-party vendors are subject to cyberattacks, data breaches, other security incidents, or disruption of information technology systems or software, such events could expose us to liability, could damage our reputation, and have a material adverse effect on our business.

Given the nature of our business, we, together with third parties acting on our behalf, receive, collect, process, use, and retain sensitive and confidential customer and associate data, in addition to proprietary business information.

Our business relies on information technology networks and systems to market and sell our products, process financial and personal information, manage a variety of business processes, and comply with regulatory, legal and tax requirements.

We also depend on a variety of information systems to effectively process customer orders and other data, for digital marketing activities and for electronic communications among our associates, customers, prospective customers, and vendors.

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.

We also employ secure file transfer options to provide security for processing, transmission and storage of confidential information.

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 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.

The information technology networks and systems owned, operated, controlled or used by us or our vendors may be vulnerable to damage, disruptions or shutdowns, software or hardware vulnerabilities, data breaches, security incidents, supply-side attacks, failures during the process of upgrading or replacing software, databases or components, power outages, natural disasters, hardware failures, attacks by computer hackers, telecommunication failures, user errors, user malfeasance, computer viruses, unauthorized access, phishing or social engineering attacks, ransomware attacks, denial-of-service attacks and other real or perceived cyberattacks or catastrophic events, all of which may not be prevented by our efforts to secure our computer systems.

Any of these incidents could lead to interruptions or shutdowns of our platform, disruptions in our ability to process customer orders or to track, record or analyze the sale of our products, loss or corruption of data or unauthorized access to or acquisition of personal information or other sensitive information, such as our intellectual property.

We utilize security tools and controls and also rely on our third-party vendors to use sufficient security measures, including encryption and authentication technology, in an effort to protect personal and other sensitive information.

However, advances in computer capabilities, increasingly sophisticated tools and methods used by hackers and cyber terrorists, new discoveries in the field of cryptography or other developments may result in our failure or inability, or the failure or inability of our vendors, to adequately protect personal or other sensitive information and there can be no assurance that we or our vendors will not suffer a cyberattack, that hackers or other unauthorized parties will not gain access to or exfiltrate personal information or other sensitive data, or that any such data compromise or unauthorized access will be discovered in a timely fashion.

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 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.

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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, and our third-party vendors, regularly experience cyberattacks aimed at disrupting services.

Our third-party vendors have been and 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.

Security incidents such as ransomware attacks are becoming increasingly prevalent and severe, as well as increasingly difficult to detect.

We, and our third-party vendors, have been subject to cyber, phishing and social engineering attacks and other security incidents in the past and may continue to be subject to such attacks in the future.

Security breaches can also occur as a result of non-technical issues, including intentional or inadvertent actions by our associates, our third-party vendors or their personnel or other parties.

If we or our third-party service providers experience security breaches that result in a decline 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.

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.

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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.

State, federal and foreign governments are increasingly enacting laws and regulations governing the collection, use, retention, sharing, transfer and security of personally identifiable information and data.

For example, the California Consumer Privacy Act of 2018, which took effect on January 1, 2020, imposes certain restrictions and disclosure obligations on businesses that collect personal information about California residents and provides for a private right of action, as well as penalties for noncompliance.

We are subject to other consumer protection laws, including the Fair and Accurate Credit Transactions Act and the Telephone Consumer Protection Act.

Additionally, the regulatory environment is increasingly demanding with frequent new and changing requirements concerning cybersecurity, information security and privacy, which may be inconsistent from one jurisdiction to another.

Any failure by us or any of our business partners to comply with applicable laws, rules and regulations may result in investigations or actions against us by governmental entities, private claims and litigation, fines, penalties or other liabilities.

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

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

The value of our brands is largely dependent on the success of our merchandise assortment and our ability to provide a consistent, high quality customer experience.

We also believe that maintaining and enhancing the reputation and recognition of our banners, particularly DSW, is critical to our ability to expand and retain our customer base.

Any negative publicity about us or the significant brands we offer may reduce demand for our merchandise.

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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 our Camuto Group business are dependent on our ability to maintain the brands we license.

The value of our brands may also depend on the success of our corporate social responsibility ("CSR") and sustainability initiatives, which require company-wide coordination and alignment.

Risks associated with these initiatives include any increased public focus, including by governmental and nongovernmental organizations, new laws and regulations, increased costs associated with sustainability efforts and/or compliance with laws and regulations, as well as increased pressure to expand our CSR and sustainability disclosures in these areas, make commitments, set targets or establish additional goals and take actions to such targets and goals.

All of the foregoing could expose us to market, operational and execution costs or risks.

Any CSR or sustainability metrics that we currently or may in the future disclose, whether based on the standards we set for ourselves or those set by others, may influence our reputation and the value of our brands.

There is also increased focus, including by investors, customers, and other stakeholders, on CSR 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.

The reputation and competitive position of our Brand Portfolio segment is 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.

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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 own footwear, and in some cases handbag, licensing rights of Jessica Simpson, Lucky Brand, 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, JLO 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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There can be no assurance that we will be able to renew these licenses.

Even our longer-term or renewable licenses are typically dependent upon our ability to market and sell the licensed products at specified levels, and the failure to meet such levels may result in the termination or non-renewal of such licenses.

Even our longer-term or renewable licenses are typically dependent upon our ability to market and sell the licensed products at specified levels, and our failure to meet such levels may result in the termination or non-renewal of such licenses.

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.

Risks Relating to the External Environment

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.

Our ABL Revolver has 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.

In addition, the ABL Revolver contains 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.

The ABL Revolver contains customary events of default.

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

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

RISKS RELATING TO EXTERNAL FACTORS

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

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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.

Our business may be adversely affected if we are unable to provide our customers with 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.

The smaller screen size, functionality, and memory associated with smartphones, laptops, and tablets may make the use of our sites and purchasing our products more difficult.

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

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

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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 also are dependent on the interoperability of our sites with popular mobile operating systems that we do not control, such as iOS and Android, and any changes in such systems that degrade the functionality of our sites or mobile app, limit or discontinue our access to a particular platform, or give preferential treatment to competitive products or services, could adversely affect the usage of our sites on mobile devices.

We are also subject to the policies and terms of service of the providers of such operating systems and mobile application download stores, which govern the promotion, distribution, content, and operation of our mobile applications.

Each provider has broad discretion to change and interpret its terms of service and other policies with respect to us and other developers, and those changes may be unfavorable to us.

Additionally, mobile application download stores have imposed, and are likely to continue imposing, certain privacy-and security-related restrictions and controls on the providers and applications within their marketplaces.

For example, Apple released a software update in 2021 that, by default, blocks advertisers from tracking certain mobile device activity unless affirmative consent is obtained.

In the event that it is more difficult for our customers to access and use our sites on their mobile devices, or if our customers choose not to access or to use our sites on their mobile devices or to use mobile products that do not offer access to our sites, it could have a material adverse effect on our business, financial condition, and results of operations.

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

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

public health threats, including the COVID-19 outbreak;

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

public health threats, including the COVID-19 pandemic;

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

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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.

In addition, we rely on manufacturers that operate outside of North America, 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.

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 pandemic, the cost 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.

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, or results of operations.

Vaccine mandates and other governmental regulations relating to the ongoing COVID-19 pandemic could have a material adverse impact on our business, operations, and results of operations.

On September 9, 2021, President Biden announced a proposed rule requiring that all employers with at least 100 employees require that their employees be fully vaccinated or tested weekly (the "vaccine mandate").

Department of Labor’s Occupational Safety and Health Administration ("OSHA") issued an emergency temporary standard regulation to carry out this mandate.

On January 26, 2022, OSHA withdrew the emergency temporary standard regulation, ending the vaccine mandate.

At this time, it remains unclear whether OSHA will try to enact similar mandates in the future.

As a result, we may be required to implement a requirement that all of our associates or certain of our associates get vaccinated or regularly tested for COVID-19.

At this time, it is not possible to predict the impact that a vaccine mandate and any other related measures, or a vaccine requirement should we adopt one, will have on us.

Any vaccine requirement put in place may result in employee attrition and impact our ability to recruit new talent, all of which could have a material adverse effect on our business, operations, and results of operations.

We are subject to stringent and changing privacy laws, regulations, and standards as well as policies, contracts, and other obligations related to data privacy and security.

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

State, federal, and foreign governments are increasingly enacting laws and regulations governing the collection, use, retention, sharing, transfer, and security of personally identifiable information and data.

A variety of federal, state, local, and foreign laws and regulations, orders, rules, codes, regulatory guidance and certain industry standards regarding privacy, data protection, consumer protection, information security and the processing of personal information and other data apply to our business.

For example, the California Consumer Privacy Act of 2018 ("CCPA"), which took effect on January 1, 2020, imposes certain restrictions and disclosure obligations on businesses that collect personal information about California residents and provides for a private right of action, as well as penalties for noncompliance.

The CCPA provides for civil penalties for violations and creates a private right of action for certain data breaches that is expected to increase data breach litigation.

It remains unclear how various provisions of the CCPA will be interpreted and enforced.

The California Privacy Rights Act ("CPRA"), which was passed in November 2020 and will take effect in January 2023 (with a look-back for certain requirements to January 2022), amends and expands the CCPA and places additional restrictions on the "sharing" of personal information for purposes of cross-context behavioral advertising.

We may be subject to additional privacy regulations in the future, including the Virginia Consumer Data Protection Act and the Colorado Privacy Act, both of which regulate the processing of "personal data" regarding their respective residents and grants residents certain rights with respect to their personal data.

State laws are changing rapidly, and new legislation proposed or enacted in a number of other states imposes, or has the potential to impose, additional obligations on companies that process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally.

federal government is also significantly focused on privacy matters.

We are subject to other consumer protection laws, including California's Consumer Legal Remedies Act and unfair competition and false advertising laws, the Fair and Accurate Credit Transactions Act and the Telephone Consumer Protection Act, Canada's Anti-Spam Law, the CCPA, CPRA and other recently enacted consumer data protection laws.

Any failure by us or any of our business partners to comply with applicable laws, rules, and regulations may result in investigations or actions against us by governmental entities, private claims and litigation, fines, penalties or other liabilities.

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

While we aim to comply with applicable data protection laws and obligations in all material respects, there is no assurance that we will not be subject to claims that we have violated such laws and obligations, will be able to successfully defend against such claims, or will not be subject to significant fines and penalties in the event of non-compliance.

Additionally, to the extent multiple state-level laws are introduced with inconsistent or conflicting standards and there is no federal law to preempt such laws, compliance with such laws could be difficult and costly to achieve, or impossible to achieve, and we could be subject to fines and penalties in the event of non-compliance.

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

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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.

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.

Moreover, natural disasters and extreme weather conditions may impact the productivity of our facilities, the operation of our supply chain, or consumer buying patterns.

Any of these risks could have a material adverse effect on our business.

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

Laws, 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.

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However, such conversion could affect the timing of any such sale, which may in turn affect the price a holder may receive upon such sale.

The Schottenstein Affiliates, entities owned by or controlled by Jay L.

Entities owned by or controlled by Jay L.

Schottenstein, the Executive Chairman of the Designer Brands Inc.

Board of Directors, and members of his family, directly control or substantially influence the outcome of matters submitted for Designer Brands Inc.

Board of Directors, and members of his family (the "Schottenstein Affiliates") directly control or substantially influence the outcome of matters submitted for Designer Brands Inc.

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

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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