SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report:
April 22, 1997
DESIGNS, INC.
(Exact Name of registrant as specified in its charter)
Delaware 0-15898 04-2623104
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
66 B Street, Needham, Massachusetts 02194
(Address of principal executive offices) (Zip Code)
(617) 444-7222
(Registrant's telephone number, including area code)
Item 5. Other Events
Designs, Inc. (the "Company") is filing this Report with the
Securities and Exchange Commission in order to set forth in a readily
available document certain significant risks and uncertainties that
are important considerations to be taken into account in conjunction
with consideration and review of the Company's reports, registration
statements, information statements, press releases, and other
publicly-disseminated documents (including oral statements concerning
Company business information made by others on behalf of the Company)
that include forward-looking information.
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The nature of forward-looking information is that such
information involves assumptions, risks and uncertainties. Certain
public documents of the Company and oral statements made by authorized
officers, directors, employees, agents and representatives of the
Company, acting on its behalf, may include forward-looking information
which will be influenced by the following and other assumptions, risks
and uncertainties. Forward-looking information requires management of
the Company to make assumptions, estimates, forecasts and projections
regarding the Company's future results as well as the future
effectiveness of the Company's strategic plans and future operational
decisions. Forward-looking statements made by or on behalf of the
Company are subject to the risk that the forecasts, projections, and
expectations of management, or assumptions underlying such forecasts,
projections and expectations, may become inaccurate. Accordingly,
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actual results and the Company's implementation of its plans and
operations may differ materially from forward-looking statements made
by or on behalf of the Company. The following discussion identifies
certain important factors that could affect the Company's actual
results and actions and could cause such results and actions to differ
materially from any forward-looking statements made by or on behalf of
the Company that related to such results and actions. Other factors,
which are not identified herein, could also have such an effect.
GENERAL ECONOMIC RISK FACTORS
Forward-looking statements of the Company are subject to the risk
that assumptions made by management of the Company concerning future
general economic conditions such as recession, inflation, interest
rates, tax rates, consumer spending and credit and other future
conditions having an impact on retail markets and the Company's
business may prove to be incorrect. Adverse changes in such future
economic conditions could have an adverse affect on the Company's
business.
CONSUMER PREFERENCES
The casual apparel industry is intensely competitive and subject
to rapid changes in consumer preferences and fashion trends. A
significant marketing or promotional success by one or more of the
Company's existing or yet to be established competitors could
adversely affect the Company's competitive position. In addition, in
the United States, where the casual apparel market is mature, sales
growth may depend in part on whether the Company can increase its
market share at the expense of its competitors.
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COMPETITION
Competition in markets for the Company's products occurs in a
variety of ways, including, among other factors, price, quality,
reputation, brand image and recognition, ability to anticipate fashion
trends and customer preferences, store design and location, inventory
control, quality control of the Company's products, advertising and
customer service. Other factors that will affect the Company's
competitive position include uncertainties associated with product
procurement from foreign sources, dependence upon foreign
manufacturing operations, the Company's ability to offer consumers a
broad selection of merchandise, and the Company's ability to continue
to manage operational changes required to transition the Company from
a single vendor retailer to a vertically integrated retailer.
The intensity of the competition faced by the Company and the
rapid changes in consumer preferences that can occur in the casual
apparel markets pose significant risks to the Company. Many of the
Company's competitors are national and regional department, specialty
and discount chain stores that offer similar products. Many of the
Company's principal competitors have greater market share and
financial resources than the Company and there are no assurances that
the Company will be able to compete successfully with these
competitors in the future.
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On January 28, 1995, Designs JV Corp., a wholly-owned subsidiary
of the Company, and a subsidiary of Levi's Only Stores, Inc., a
wholly-owned subsidiary of Levi Strauss & Co., entered into a
partnership agreement (the "Partnership Agreement") to sell
Levi's(R) brand products and jeans-related products. The joint
venture established by the Partnership Agreement is known as The
Designs/OLS Partnership (the "OLS Partnership"). The Company
previously announced that the OLS Partnership may open up to a total
of thirty-five to fifty Original Levi's(R) Stores(TM) and Levi's(R)
Outlet stores throughout eleven northeast states and the District of
Columbia (the "Territory") through January 2000.
Levi Strauss & Co., through its wholly-owned subsidiary, Levi's
Only Stores, Inc., has opened retail stores, including Original
Levi's(R) Stores(TM) and Levi's(R) Outlet stores, in the United States
and elsewhere. Levi's Only Stores, Inc. appears to be prepared to
open additional retail stores throughout the United States. The
Company understands that such store formats, including Original
Levi's(R) Stores(TM), Levi's(R) Outlet stores, Dockers(R) Shop stores,
Dockers(R) Outlet stores, and Personal Pair(TM) stores, may feature
one or more Levi Strauss & Co. brands of merchandise. While the OLS
Partnership remains in existence, Original Levi's(R) Stores(TM) and
Levi's(R) Outlet stores opened in the Territory may only be opened by
the OLS Partnership. Levi Strauss & Co. and its affiliates currently
operate and are permitted to open retail stores based on other store
formats that will compete with the Company's stores. As described
elsewhere in this Report, the Company stocks its Levi's(R) Outlet by
Designs stores and the OLS Partnership's Levi's(R) Outlet stores
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exclusively with manufacturing overruns, discontinued lines and
irregulars purchased by the Company directly from Levi Strauss & Co.
and end-of-season Levi Strauss & Co. brand merchandise transferred
from the Company's Designs stores and the OLS Partnership's Original
Levi's(R) Stores(TM). By its nature, this merchandise is subject to
limited availability and is allocated by Levi Strauss & Co., in its
sole discretion, among Levi's Only Stores, Inc., the Company and the
other authorized operators of Levi's(R) Outlet stores.
SEASONALITY AND INVENTORY RISK
Historically, the Company has experienced seasonal fluctuations
in revenues and income, with a larger portion of each generated in the
second half of the Company's fiscal year as a result of the Fall and
Holiday seasons. The seasonal nature of the Company's business
requires the Company to increase its inventory levels prior to the
latter half of its fiscal year in preparation for such selling
seasons. The casual apparel industry has a significant lead time for
design, production and delivery of merchandise and, therefore, the
Company must commit to purchase orders and production orders well in
advance of the time when such merchandise would be available for sale
to consumers. Merchandise orders normally must be placed well in
advance of each selling season when customer preferences and fashion
trends are not yet evident from customer purchases. Since the Company
must enter into commitments and contracts for the purchase of Levi
Strauss & Co. brand merchandise and the manufacture of Boston
Traders(R) brand merchandise well in advance of each selling season,
the Company is vulnerable to changes in consumer demand and pricing
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shifts and to errors in selection and timing of such merchandise
purchases. If the Company fails to accurately forecast consumer
demand or if there are changes in consumer preferences or market
demand after the Company has committed to such purchase and production
orders, the Company may encounter difficulty in liquidating its
inventory. These variables may have an adverse effect on the Company
and the image of the brands offered for sale by the Company as well as
its sales, gross margins and earning results.
DEPENDENCE ON LEVI STRAUSS & CO. MERCHANDISE
Almost all of the Company's revenue is derived from the operation
of its retail stores. Except for the Company's Boston Trading Co.(SM)
stores, Designs stores and Boston Traders(R) outlet stores, all or
substantially all of the merchandise sold to consumers through the
Company's stores is merchandise manufactured by Levi Strauss & Co. and
its licensees. The Company does not now have, and never has had, any
agreement with Levi Strauss & Co. guaranteeing minimum quantities of
merchandise to be supplied to the Company, establishing a price
structure for the Company's purchases of Levi Strauss & Co.
merchandise, or compelling the Company to purchase minimum quantities
or specific styles or colors of merchandise. The Company has no
assurance that it will be able to continue to purchase merchandise
from Levi Strauss & Co. in adequate quantities or on terms that are
comparable to those available to other retailers. The Company would
be materially and adversely affected by any material reductions in the
availability of Levi Strauss & Co. merchandise, any adverse change in
Levi Strauss & Co. business, marketing strategy or product mix, or any
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significant increase in the prices the Company must pay for Levi
Strauss & Co. merchandise. The Company also may be materially and
adversely affected in the event of negative publicity concerning the
reputation of Levi Strauss & Co. or the reputation of its merchandise.
RISK OF RESTRICTION ON USE OF LEVI STRAUSS & CO. TRADEMARKS, SERVICE
MARKS, TRADE DRESS AND TRADE NAMES
The Company and the OLS Partnership use certain trademarks,
service marks, trade names and brand names of Levi Strauss & Co. in
their store names, displays and advertising with the permission of
Levi Strauss & Co. The Company has an agreement with Levi Strauss &
Co. to use certain Levi Strauss & Co. trademarks on the Company's
store signs. The OLS Partnership entered into a license agreement
that grants the OLS Partnership the right to use certain service
marks, trade names and trade dress owned by Levi Strauss & Co. The
Company and the OLS Partnership make no payments to Levi Strauss & Co.
or its affiliates with respect to the use of such trademarks, service
marks, trade names, and trade dress. The Company, including the OLS
Partnership, could be materially and adversely affected by significant
limitations imposed on the use of Levi Strauss & Co. trademarks,
service marks, trade names, trade dress or brand names.
RISK OF INFRINGEMENT OF THE COMPANY'S TRADEMARKS
The Company is the owner in the United States of the registered
trademark "Boston Traders" and certain other trademarks, service
marks and trade names. Certain of these marks are also registered, or
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are the subject of pending applications, in the trademark registries
of foreign countries. The Company considers its rights in the Boston
Traders(R) trademark and its other marks in the United States and in
foreign countries to be valuable assets of the Company which may have
a significant influence on the Company's ability to expand. Any
infringement upon the Company's Boston Traders(R) trademark or its
other trademarks, service marks and trade names or any piracy of the
Company's other intellectual property or its products would have a
negative impact upon the Company's ability to promote, market and
enhance its branded merchandise.
RISK RELATED TO TRANSITION TO A VERTICALLY INTEGRATED RETAILER
For almost 20 years, the Company purchased merchandise
exclusively from Levi Strauss & Co. and its licensees. In November
1994, and more significantly in May 1995, the Company undertook a
transition from being a single vendor retailer to being a multi-brand
vertically integrated retailer offering, in addition to the Levi's(R)
and Dockers(R) brands, its own Boston Traders(R) brand of merchandise.
As part of this transition, the Company has made significant
additions to its management and staff in order to establish product
development, product sourcing and logistics capabilities. This
transition will require the Company to successfully manage new
vertically integrated operations that develop, design, source and
distribute Boston Traders(R) brand products. There are no assurances
that the Company will be able to successfully continue to transition
its operations from a single vendor to a vertically integrated
retailer. There are no assurances that the Company will be able to
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successfully update, enhance and distinguish the Boston Traders(R)
brand or develop merchandise that will complement the Levi Strauss &
Co. brands sold by the Company. The Company may also be materially
and adversely affected in the event of negative publicity concerning
the reputation of the Company or its private label merchandise.
STORE EXPANSION RISKS
Levi Strauss & Co. informed the Company that it did not see an
opportunity for the Company to increase the number of its Levi's(R)
Outlet by Designs stores, nor the number of its Designs stores in the
exclusively Levi Strauss & Co. brands format. Accordingly, the
Company's ability to continue to increase the number of stores it
operates depends, in part, on the Company's ability to successfully
develop, open and operate stores that feature Boston Traders(R) brand
merchandise and, in part, upon the OLS Partnership's ability to
successfully continue to identify, secure, open and operate new
Original Levi's(R) Stores(TM) and Levi's(R) Outlet stores within the
Territory. Store expansion also depends upon on a number of other
general factors including the Company's ability to identify and secure
suitable store locations, the negotiation of acceptable lease terms,
merchandise availability and the Company's future financial resources.
The Company anticipates that new store locations and existing store
relocations will continue to be subject to new branch opening approval
policies and practices of Levi Strauss & Co. The Company expects to
continue to work closely with Levi Strauss & Co. in evaluating product
availability for existing and new store locations and must obtain the
approval of Levi Strauss & Co. before opening new stores. There are
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no assurances that the Company will continue to be successful in
either obtaining suitable store locations for its new or relocated
stores nor in negotiating acceptable lease terms for such locations.
Also, there are no assurances that new stores will achieve
profitability or that existing profitable stores will remain so.
There are no assurances that the Company will be able to develop a new
store format featuring the Boston Traders(R) brand, or that, if
developed, any new store based upon such store format will be
successful.
The OLS Partnership has a ten year term. However, the
Partnership Agreement contains certain exit rights that enable either
partner to buy or sell their interest in the OLS Partnership,
including the right to buy or sell particular stores operated by the
OLS Partnership. The Company would be materially and adversely
affected if, following January 2000, Levi Strauss & Co. or its
affiliates were to purchase profitable Original Levi's(R)
Stores(TM) and Levi's(R) Outlet stores owned and operated by the OLS
Partnership and either cause to remain in the OLS Partnership or to
seek to require an affiliate of the Company to purchase any
unprofitable Original Levi's(R) Stores(TM) and Levi's(R) Outlet
stores.
INCREASING ADVERTISING COSTS
For almost 20 years the Company has enjoyed the benefit of being
closely identified with Levi Strauss & Co. As the Company continues
to feature its own and other brands of merchandise, the Company will
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increasingly rely upon its own advertising and promotional efforts to
build and enhance brand image. Historically, the Company has received
co-operative advertising allowances from Levi Strauss & Co. that have
funded as much as one third of all advertising expenditures. As the
Company decreases the proportion of Levi Strauss & Co. brand
merchandise, the advertising allowances associated with the Company's
advertising will decrease proportionately. Accordingly, the Company's
business will require increased expenditures for marketing and
advertising. There are no assurances that such increased expenditures
will be financially possible or, if undertaken, will result in
increased sales.
DEPENDENCE ON CONTRACT MANUFACTURING
The Company's Boston Traders(R) brand products are primarily
manufactured outside of the United States and, to a lesser extent,
within the United States. To the extent that the Company succeeds in
its efforts to expand sales of Boston Traders(R) brand merchandise,
the Company will become increasingly dependent upon unaffiliated
foreign and domestic firms for the sourcing of its products. Foreign
manufacturing and, to a lesser extent, domestic manufacturing are
subject to a number of risks, including work stoppages, transportation
delays and interruptions, political instability, foreign currency
fluctuations, economic disruptions, expropriation, nationalization,
the imposition of tariffs and import and export controls and quotas,
changes in governmental policies (including United States policies
towards these foreign countries) and other factors which could have an
adverse effect on the Company's business. Further, revocation of
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"most favored nation" status for, or the imposition of trade
sanctions against foreign countries in which the Company's
manufacturers operate could have an adverse affect on the Company's
business. The Company has not entered into long-term contractual
arrangements with its foreign or domestic manufacturers. The loss of
any one or more of its foreign or domestic manufacturers could have an
adverse effect on the Company's business until, if at any time,
suitable alternative supply arrangements were secured.
SOURCES OF SUPPLY
The Company depends upon its unaffiliated firms to source high-
quality fabrics and other products in a timely and cost-efficient
manner and relies upon the availability of sufficient production
capacity and the ability to utilize alternative sources of supply. In
addition, if these sources were to experience significant shortages in
raw materials used in the Company's products, it could have a negative
effect on the Company's business, including increased costs or
difficulty in delivering product.
LITIGATION RISKS
The Company is subject to the normal risks of litigation with
respect to its business operations.
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FACTORS AFFECTING THE COMPANY'S BUSINESS ARE SUBJECT TO CHANGE
This Report contains cautionary statements concerning certain
factors that may influence the business of the Company and are made as
of the date of this Report. Such factors are subject to change. The
cautionary statements set forth in this Report are not intended to
cover all of the factors that may affect the Company's business in the
future. Forward-looking information disseminated publicly by the
Company following the date of this Report may be subject to additional
factors hereafter published by the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
DESIGNS, INC.
Date: April 22, 1997 By: /s/ Joel H. Reichman
_______________________________
Joel H. Reichman, President and
Chief Executive Officer
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