What changed in this filing

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Item 1A. Risk Factors

2022-04-01 compared with 2021-04-01 · 57 added, 52 removed, 199 unchanged (35% of the section changed)

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The Coronavirus pandemic has and will continue to materially and adversely affect our business operations globally.

The COVID-19 pandemic continues to materially impact the Company’s operations in the United States and globally, and related government and private sector responsive actions have and will continue to adversely affect its business operations.

On March 11, 2020, the World Health Organization declared the novel strain of COVID-19 a global pandemic and recommended containment and mitigation measures worldwide, causing public health officials to recommend precautions to mitigate the spread of the virus, including warning against congregating in heavily populated areas, such as malls and shopping centers.

On March 14, 2020, the Company temporarily closed all stores globally.

The Company subsequently reopened substantially all of our stores throughout fiscal 2021 in accordance with local government guidelines.

As a result of the COVID-19 pandemic, our store operations continue to be impacted by temporary store closures, primarily in Europe, and reduced customer traffic in reopened store locations globally due in part to local government guidelines that have imposed certain operating restrictions, including capacity limits.

The Company is also following established health protocols, providing personal protective equipment to our employees, implementing a rigorous cleaning program and implementing social distancing working practices as required by local authorities.

The Company’s distribution and fulfillment centers remained open to support the Retail and Wholesale segment operations, but have done so with additional safety procedures and enhanced cleaning to protect the health of the employees.

The Company closed its offices and showrooms globally with the exception of location dependent employees.

All other corporate and showroom employees are working remotely.

The extent of the impact of the COVID-19 pandemic on our business, consolidated results of operations, consolidated financial position and consolidated cash flows, including any potential impairment or other fair value adjustments, will depend largely on future developments, including the duration of the outbreak and the occurrence of additional waves of infections in the United States and globally, the extent of any further recession resulting from the pandemic, the effectiveness and speed of vaccination distribution, the related impacts on consumer confidence and spending, potential future government restrictions on retail operations and the willingness of customers to visit malls and shopping centers, the willingness of employees to staff our stores and fulfillment centers, and when, or if, we will be able to resume normal operations, all of which are highly uncertain and cannot be predicted.

Additionally, we may need to cease or significantly limit our operations again if subsequent outbreaks occur, either more broadly or within our stores.

The COVID-19 pandemic continues to present significant uncertainty and risk with respect to our business, financial performance and condition, operating results, liquidity and cash flows.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Impact of the Coronavirus Pandemic for further discussion.

Our reportable segments are sensitive to economic conditions, market disruptions and other factors that affect consumer confidence and discretionary spending.

The continuing impacts of the COVID-19 pandemic are highly unpredictable and volatile and are affecting certain business operations, demand for our products and services, in-stock positions, costs of doing business, availability of labor, access to inventory, supply chain operations, our ability to predict future performance, and our financial performance, among other things.

The pandemic has resulted in widespread and continuing impacts on the global economy and on our employees, customers, suppliers and other people and entities with which we do business.

There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place orders and business and government shutdowns.

The pandemic and any preventative or protective actions that governments may implement, or we may take to protect the health and safety of our employees and customers, may result in business disruption, reduced customer traffic and reduced sales in certain merchandise categories, and increased operating expenses.

The pandemic continues to impact the global supply chain, with restrictions and limitations on business activities causing disruption and delay, which have strained certain domestic and international supply chains, and could continue to negatively affect the flow or availability of certain products.

Customer demand for certain products has and may continue to fluctuate as the pandemic progresses and customer behaviors change, which may challenge our ability to anticipate and/or adjust inventory levels to meet that

Similarly, increased demand for online purchases of products has impacted our fulfillment operations, resulting in delays in deliveries and lost sales from being out of stock for certain SKUs.

Failure to appropriately respond, or the perception of an inadequate response to evolving events around the pandemic could cause reputational harm to our brand and subject us to lost sales, as well as claims from employees, customers, suppliers, regulators or other parties.

Additionally, a future outbreak of confirmed cases of COVID-19 in our facilities could result in temporary or sustained workforce shortages or facility closures, which would negatively impact our business and results of operations.

Some jurisdictions have taken measures intended to expand the availability of workers compensation or to change the presumptions applicable to workers compensation measures.

These actions may increase our exposure to claims and increase our costs.

Other factors and uncertainties include, but are not limited to:

The severity and duration of the pandemic, including future mutations or related variants of the virus in areas in which we operate;

Evolving macroeconomic factors, including general economic uncertainty, inflation, unemployment rates, and recessionary pressures;

Changes in labor markets affecting us and our suppliers;

Unknown consequences on our business performance and initiatives stemming from the substantial investment of time and other resources to the pandemic response;

The pace of recovery when the pandemic subsides;

The long-term impact of the pandemic on our business, including consumer behaviors;

Disruption and volatility within the financial and credit markets.

To the extent that COVID-19 continues to adversely affect the U.S.

and global economy, our business, results of operations, cash flows, or financial condition, it may also heighten other risk factors included elsewhere within this “Risk Factors” section of our Form 10-K.

Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview— Current Trends for further discussion.

Our reportable segments are sensitive to economic conditions (including inflation), market disruptions and other factors that affect consumer confidence and discretionary spending.

Consumer purchases and rentals of discretionary retail items and specialty retail products, including our products, may decline during recessionary periods and also may decline at other times when disposable income is lower.

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Economic conditions, both on a global level and in particular markets, may have significant effects on consumer confidence and discretionary spending that would in turn, affect our business or the retail industry generally.

Some of these economic conditions include wages and employment, consumer debt, reductions in net worth based on severe market declines, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, volatility in credit markets, credit availability, political and economic crises and other macroeconomic factors.

Some of these economic conditions include inflation, wages and employment, consumer debt, reductions in net worth based on severe market declines, residential real estate and mortgage markets, taxation, fuel and energy prices, interest rates, volatility in credit markets, credit availability, political and economic crises and other macroeconomic factors.

These factors may affect consumer purchases and rentals of our merchandise and adversely impact our results of operations and continued growth.

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In response, we may be forced to rely on additional markdowns or promotional sales to dispose of excess, slow-moving inventory, which could decrease our revenues or gross profit margins.

Conversely, if we underestimate consumer demand for our merchandise, or if our manufacturers fail to supply quality products in a timely manner, we may experience inventory shortages, which may negatively impact customer relationships, diminish brand loyalty and result in lost sales.

Conversely, if we underestimate consumer demand for our merchandise, our manufacturers fail to supply quality products in a timely manner, or we experience transportation capacity constraints and delays, we may experience inventory shortages, which may negatively impact customer relationships, diminish brand loyalty and result in lost sales.

In addition, we could be at a competitive disadvantage if we are unable to leverage data analytics to obtain timely customer insights to appropriately respond to customer demands.

Compared to our Retail and Subscription segments, our Wholesale segment is more sensitive to changes in fashion trends because of longer lead times in the manufacturing and sale of its apparel.

Compared to our Retail and Nuuly segments, our Wholesale segment is more sensitive to changes in fashion trends because of longer lead times in the manufacturing and sale of its apparel.

Our fashion decisions, if unsuccessfully forecasted, constitute a material risk and may have an adverse effect on our financial condition and results of operations.

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Our Retail segment competes on the basis of, among other things, the location of our stores, website, mobile application and catalog presentation, website and mobile application design, the breadth, quality, style, price and availability of our merchandise and the level of customer service offered.

Our Anthropologie Group and Free People stores also face competition from small boutiques that offer an individualized shopping experience similar to the one we strive to provide to our target customers.

Additionally, the internet and other technologies facilitate competitive entry and comparison shopping in our Retail and Subscription segments.

Our Anthropologie Group and Free People Group stores also face competition from small boutiques that offer an individualized shopping experience similar to the one we strive to provide to our target customers.

Additionally, the internet and other technologies facilitate competitive entry and comparison shopping in our Retail and Nuuly segments.

Our digital channel competes against numerous websites, mobile applications and catalogs, which may have a greater volume of circulation and web traffic or more effective marketing through online media and social networking sites.

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Our Wholesale segment competes with numerous wholesale companies, many of whose products have a wider distribution, based on the quality, fashion and price of its product offerings.

Our Subscription segment operates in an evolving apparel subscription rental market in which our competitors offer varying types of subscription rental models and products that may have greater appeal to consumers.

New competitors frequently enter, and existing competitors enter or increase their presence in, the markets in which we operate, expand their merchandise

offerings, add new sales channels or change their pricing strategies, all of which affect the competitive landscape.

Our Nuuly Rent business operates in an evolving apparel subscription rental market in which our competitors offer varying types of subscription rental models and products that may have greater appeal to consumers.

Our Nuuly Thrift business operates in a developing apparel and accessories resale market in which our competitors have sellers and products that may have greater appeal to consumers.

New competitors frequently enter, and existing competitors enter or increase their presence in, the markets in which we operate, expand their merchandise offerings, add new sales channels or change their pricing strategies, all of which affect the competitive landscape.

In addition, many of our competitors have greater name recognition and greater financial, marketing and other resources than us.

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and foreign trade policies, including the enactment of tariffs, border adjustment taxes, changes resulting from Brexit or increases in duties or quotas applicable to the products we sell that could increase the cost and reduce the supply of products available to us;

Changes resulting from the Russian invasion of Ukraine in February 2022 and from the related sanctions imposed by the United States, the European Union and others;

Changes resulting from the United States-Mexico-Canada Agreement (USMCA);

Significant labor issues, such as strikes at any of our ports in the United States, which could make it difficult or impossible for us to bring foreign-sourced products into the United States;

Significant labor issues, such as strikes or shortage of workers to manage inbound vessels at any of our ports in the United States, which could make it difficult or impossible for us to bring foreign-sourced products into the United States;

Financial or political instability in any of the countries in which the products we purchase are manufactured, if the instability affects the production or export of merchandise from those countries;

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Fluctuation in the prices of raw materials, such as cotton and synthetic fabrics, as increases in such costs can increase the cost of merchandise and potentially lead to reduced consumer demand or reduced margins;

The shortage of transportation capacity (such as the availability of ocean containers and vessels) can result in transportation cost premiums and also delay delivery of merchandise to our distribution facilities leading to an increase in markdowns both of which can adversely affect our gross profit;

The shortage of transportation capacity (such as the availability of inbound ocean containers and vessels, cargo space for inbound airplanes, and trucks to transport products from ports to our distribution facilities) can result in transportation cost premiums and also delay delivery of merchandise to our distribution facilities leading to an increase in markdowns both of which can adversely affect our gross profit;

The cost of fuel is a significant component in transportation costs;

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Our business experiences seasonal fluctuations in net sales and operating income, with a more significant portion of net income typically realized in the second half of each year predominantly due to the year-end holiday period.

Historically, and consistent with the

retail industry, this seasonality also impacts our working capital requirements, particularly with regard to inventory.

Historically, and consistent with the retail industry, this seasonality also impacts our working capital requirements, particularly with regard to inventory.

Any decrease in sales or gross profit during this period, or in the availability of working capital needed in the months preceding this period, could have a more material adverse effect on our business, financial condition and results of operations than in other periods.

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War, terrorism, civil unrest, other violence, or public health crises may negatively impact availability of merchandise and/or otherwise adversely impact our business.

In the event of war, terrorism, civil unrest or other violence, our ability to obtain merchandise available for sale in our stores or on our websites may be negatively impacted.

In the event of war (including the recent invasion of Ukraine by Russia), terrorism, civil unrest or other violence, our ability to obtain merchandise available for sale in our stores or on our websites may be negatively impacted.

A substantial portion of our merchandise is imported from other countries, see “ We rely significantly on international sources of production.

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Furthermore, consumer demand and behavior, as well as tastes and purchasing trends may differ internationally, and as a result, sales of our merchandise may not be successful, or the margins on those sales may not be in line with those we anticipate.

Additionally, our ability to conduct business internationally may be adversely impacted by political, economic, and public health risks (such as the COVID-19

pandemic), as well as the global economy.

Additionally, our ability to conduct business internationally may be adversely impacted by political, economic, and public health risks (such as the COVID-19 pandemic), as well as the global economy.

Any challenges that we encounter as we expand internationally may divert financial, operational and managerial resources from our existing operations, which could adversely impact our financial condition and results of operations.

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Violations of these laws could subject us to sanctions or other penalties that could negatively affect our reputation, business and operating results.

On January 31, 2020, the United Kingdom formally exited the European Union, commonly referred to as “Brexit.” A transition period was in place until December 31, 2020, during which time the United Kingdom remained in both the European Union customs union and single market and followed European Union rules.

On December 24, 2020, the U.K.

and the European Union announced an agreement on the EU-UK Trade and Cooperation Agreement (the EU-UK trade deal) that took effect on January 1, 2021.

The trade deal was formally approved by the U.K.

House of Commons on December 30, 2020 and is expected to be formally approved by the European Union legislature in April 2021.

While the EU-UK trade deal has removed uncertainty and a significant amount of financial risk associated with the U.K.’s exit from the European Union, we are still assessing its details and related impact on our U.K business and other operations.

The new trading relationship could disrupt the free movement of goods, services and people between the United Kingdom and the European Union and result in increased legal and regulatory complexities, as well as potential higher costs of conducting business in Europe.

The United Kingdom’s exit from the European Union could also result in similar referendums or votes in other European countries in which we do business.

The United Kingdom recently withdrew as a member of the European Union, commonly referred to as “Brexit,” effective January 31, 2020.

In December 2020, the United Kingdom and the European Union entered into an agreement that defines their future

relationship, including terms of trade, which will result in new tariffs on goods imported to the United Kingdom from the European Union that were manufactured elsewhere, as well as require additional administrative effort to import and export goods, adding friction and cost to transportation.

Brexit could also result in similar referendums or votes in other European countries in which we do business.

The United Kingdom’s withdrawal could adversely impact consumer and investor confidence, particularly in the United Kingdom, and the level of consumer purchases of discretionary items and retail products, including our products.

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While, to the best of our knowledge, we have not experienced any material misappropriation, loss or other unauthorized disclosure of confidential or personally identifiable information as a result of a security breach or cyber attack that could materially increase financial risk to the Company or our customers, such a security breach or cyber attack could adversely affect our business and operations, including by damaging our reputation and our relationships with our customers, employees and investors, exposing us to litigation, fines, penalties or remediation costs and inhibiting our ability to accept debit and credit cards as forms of payment.

Further, because our corporate and showroom employees ( with the exception of location dependent employees) are working remotely in light of COVID-19, our business may be more vulnerable to cybersecurity breach attempts due to offsite working by employees, increased use of public Wi-Fi and use of office equipment off premises .

Further, because many of our corporate and showroom employees are working hybrid office and remote schedules in light of COVID-19, our business may be more vulnerable to cybersecurity breach attempts due to offsite working by employees, increased use of public Wi-Fi and use of office equipment off premises .

In addition, this period of uncertainty could result in an increase in phishing and other scams, fraud, money laundering, theft and other criminal activity.

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In addition, if our senior executives do not fully integrate within the structure of our management team and core business, we may be adversely affected.

We do not have an employment agreement with our Chief Executive Officer or any other key personnel.

We do not have an employment agreement with our Chief Executive Officer or most other key personnel.

In addition, as our business expands, we believe that our future success will depend greatly on our continued ability to attract and retain highly skilled and qualified personnel.

There is a high level of competition for personnel in

the retail industry.

There is a high level of competition for personnel in the retail industry.

Our inability to meet our staffing requirements in the future could impair our ability to increase revenue and could otherwise harm our business.

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Any increase in the cost of our labor could have an adverse effect on our operating results, financial condition and results of operations.

In addition, wage actions by other retailers may require us to increase wage rates in order to attract and retain talented employees.

Labor shortages, increased employee turnover and our inability to successfully implement our expanded format store strategy could also increase our labor costs.

In addition, we operate in a competitive labor market, in which wage actions by other retailers and companies may require us to increase salary and wage rates, bonuses and other incentives in order to attract and retain talented employees across all of our retail store, distribution and fulfillment center, showroom and home office operations.

Labor shortages and increased employee turnover could also increase our labor costs.

This in turn could lead us to increase prices, which could adversely impact our sales.

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Damage or disruption to our distribution or fulfillment centers could have material adverse effects on our operations.

We operate nine distribution and fulfillment centers worldwide to support our Retail and Wholesale segments in the United States, Europe and Canada, including the fulfillment of catalog, website and mobile application orders around the world.

We utilize a third-party logistics provider to store and distribute merchandise for our Asia digital operations.

The merchandise purchased for our United States and Canadian retail store operations is shipped directly to our distribution centers in Gap, Pennsylvania and Reno, Nevada.

Merchandise purchased for our digital operations is shipped directly to our fulfillment centers in Gap, Pennsylvania, Reno, Nevada and Indiana, Pennsylvania.

Merchandise purchased for our wholesale operations is shipped directly to our fulfillment centers in Gap, Pennsylvania and Rushden, England.

The merchandise purchased for our Europe retail and digital operations is shipped to our distribution and fulfillment centers in Rushden, England and our omni-channel fulfillment center Peterborough, England.

We expect to complete the transition of our European distribution and fulfillment center operations from Rushden to Peterborough in fiscal 2022.

Merchandise purchased for our Subscription segment is shipped directly to our fulfillment center in Bristol, Pennsylvania.

We operate seven distribution and fulfillment centers worldwide to support our Retail and Wholesale segments in the United States, Europe and Canada, including the fulfillment of catalog, website and mobile application orders around the world.

The merchandise purchased for our United States and Canadian retail store operations is managed by our distribution centers in Gap, Pennsylvania;

Reno, Nevada;

and Kansas City, Missouri.

Merchandise purchased for our digital operations is managed by our fulfillment centers in Gap, Pennsylvania;

Reno, Nevada;

and Indiana, Pennsylvania.

Merchandise purchased for our wholesale operations is managed by our fulfillment centers in Gap, Pennsylvania and Peterborough, England.

The merchandise purchased for our Europe retail and digital operations is managed by our omni-channel fulfillment center in Peterborough, England.

Merchandise purchased for our Nuuly Rent business is managed by our fulfillment center in Bristol, Pennsylvania.

Damage to, or disruption of the operations at, any of these centers due to work stoppages, system failures, accidents, economic conditions, severe weather or natural disasters, including as a result of climate change, demographic and population changes, health epidemics and pandemics (such as COVID-19), as well as other unforeseen events and circumstances could have a material adverse effect on our financial condition, results of operations or cash flows.

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All manufacturers are required to follow applicable national labor laws, as well as international compliance standards regarding workplace safety, such as standards that require clean and safe working environments, clearly marked exits and paid overtime.

believe in protecting the safety and working rights of the people who manufacture the products we sell, while recognizing and respecting cultural and legal differences found throughout the world.

We believe in protecting the safety and working rights of the people who manufacture the products we sell, while recognizing and respecting cultural and legal differences found throughout the world.

We require our third-party vendors to register through an online website and agree that they and their suppliers will abide by certain standards and conditions of employment.

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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