Passionate surfers around the world lack a premium brand to embrace. Today's surfwear brands all target the same market: youth. LOCL® will elevate the market and create the finest surfing apparel in the world. We plan to give 3% of our sales to ocean-focused non-profits and become a Certified B Corporation®.
A beautiful and inspiring brand will eventually win the premium niche in the multi-billion-dollar global surfwear market. We simply ask: why couldn’t that be us?
The global surfwear market currently presents a once-in-a-lifetime opportunity to redefine what it means to be a surfer. Once dominated by large corporate conglomerates founded decades ago, surfing’s storied heritage and current progressive movement yearn for a beautiful and authentic premium brand with a strategic focus on quality and design.
Indeed, surfing demographics have evolved, resulting in a larger proportion of surfers who are older, more educated, and increasingly affluent. This large and sophisticated market desires a brand that presents a stunning reflection of their passion for surfing – an ultra-premium lifestyle brand that reflects their upscale design ethos and modern core values.
There has also been a transformative shift in the behavior of consumers who now want brands to not only exceed their expectations, but to add value to their lives by being inspiring, purposeful and seamless. We are uniquely positioned to deliver on these new expectations and are developing world-class partnerships to connect the steps of our customer’s journey in a cohesive, inspiring and service-focused manner.
As a digitally-native modern luxury company, we focus our efforts predominantly on one goal: creating the world’s finest performance surfwear, surfing apparel and accessories. We are a young, innovative startup. Founded by highly experienced retail leaders and passionate surfers, we plan to elevate the surfwear market to levels never seen before.
We have accomplished a significant amount to-date, including strategy definition, trademark acquisition, team building, branding and product designs. We now seek investment partners that share our passion for the ocean and align with our values and mission to create the finest brand in surfing.
Jonathan Rath Founder & CEO
The global surfing apparel market is projected to grow from $7.1 billon in ‘18 to $10.3 billion in ‘24. Once dominated by younger participants, surfing demographics are evolving, and the majority of surfers in the U.S. are now adults. Most surfers are 30+ years old, college students or graduates and 36% earn $100,000+ per year.
Globally, the surfing apparel market is dominated by five major players: Quiksilver®, Billabong®, Rip Curl®, Hurley® and Volcom®. Each of these brands, however, shares a common target market focus: youth. For mature, passionate and more affluent surfers, however, a brand that inspires, excites and effectively addresses the premium segment simply does not exist.
Surfing is one of the world's most beautiful sports, and LOCL® embraces and celebrates the freedom and passion unique to surfers worldwide. With a timeless aesthetic, we honor the history of surfing, while innovating continuously and pushing the limits of modern surfing apparel design. We value integrity, innovation, passion, purpose, quality and design. We're taking these values and applying them to one of the most inspirational and perhaps misunderstood pursuits in the world.
Outside of the surfing world, several well-known brands also give inspiration and encouragement. These companies include: (1) Rapha®, whose high-quality cycling apparel and customer experience help them earn approximately $100 million in annual sales and a recent acquisition for $260 million; (2) Patagonia®, whose iconic mountain brand and well-known commitment to the environment helped them achieve 2018 sales of $1 billion; and (3) lululemon®, the now iconic yoga apparel brand that earns over $3 billion in sales per year and boasts a market valuation of $20+ billion (Nasdaq: LULU).
We simply ask: if lululemon® could do it for yoga and Rapha® could do it for cycling, why couldn't LOCL® do it for the growing global surfing apparel market?
Our target customers include educated and affluent men and women aged 25 to 54+ who understand the importance of living an active and passionate life. We believe our customers pursue surfing and other ocean activities to achieve physical fitness and inner peace. We expect to meet our customers’ needs by incorporating style along with comfort and functionality into our products and by delivering them through our direct-to-consumer retail strategy. While we will initially address the unique needs of men, we will also design products tailored specifically for women.
Brand and products
The LOCL® brand is quietly assured, unassuming, and world-class, and stands for leading a passionate and inspired surfing-focused lifestyle. We believe customers will come to associate us with premium quality stylish apparel that incorporates technically advanced materials, innovative functional features, and a casually sophisticated and forward-thinking aesthetic. While the majority of our competition (e.g., Volcom®) focus on trend-oriented teens, we decidedly concentrate on passionate and affluent adults.
LOCL® products represent the finest in apparel quality, and are designed for performance, functionality, comfort and style. Our offerings will be tailored specifically for men and women, and will include innovative technical and casual jackets, pants, shorts, shirts and sweaters, in addition to premium surfwear, wetsuits and accessories. Designed by world-class performance apparel designers, and responsibly produced by partners in the U.S. and Europe, the LOCL® range will be on par with the likes of Rapha®, Herno® and Orlebar Brown®.
In addition to our Foundation Collection (please see attached), which we intend to fully develop over the coming years, we also intend to create complimentary product lines, such as luggage and skincare, and limited edition offerings, including art inspired clothing and photography books and prints. We plan to launch with a focused assortment of five to seven styles, which exudes the inspired, quiet confidence synonymous with our brand.
For more insight on why we chose our name watch some Tahitian locals charging here.
Engaging directly with customers and creating a beautiful and inspirational customer experience is a core component of our business strategy. We will develop a world-class "direct-to-consumer" customer experience that seamlessly connects the LOCL® brand with passionate surfers throughout the world.
In addition to a best-in-class cross-platform eCommerce experience, we plan to introduce integrated retail locations called LOCL® Ocean Clubs in strategic global surfing locations, including California, Hawaii, Australia, Bali, Brazil, South Africa, France and Japan. Inspired by Rapha® Clubhouses, our Ocean Clubs will be a combination of premium shop, local art gallery, professional surfing broadcast center and café – an upscale hub and gathering place for international surfers and ocean enthusiasts.
Our website will embody the core tenets of our brand and reach a global audience with a unique and thoroughly modern digital experience. Our “Inside” features will take our audience to locations throughout the world, and uncover authentic local stories. Our “Behind the Scenes” features will document what really goes down during primetime at some of the world’s greatest waves. Our “History of Surfing” features will illuminate the surfing heritage of world-class locations. “Giving” and “Shop” sections will showcase our social and environmental commitment, and product innovation.
We plan to present our audience with rich, beautifully produced original content, which inspires and excites, and reaffirms their commitment to surfing. With lifestyle photography, films, writing, travel, products, and LOCL® Ocean Clubs, we intend to embrace our customers with both surfing's storied heritage and its current progressive movement. We have begun to partner with world-class photographers, filmmakers, writers, and branding, PR and social media influence firms.
Leadership and advisory team
LOCL® is led by a world-class team of passionate surfers and retail veterans from Deloitte Consulting, TPG Growth and lululemon®. Our Founder and CEO, Jonathan Rath, has 30+ years of global surfing experience, and is a leader in retail and consumer goods consulting. With 20+ years of post-MBA business experience, Jonathan has led transformational change for clients including Nike®, Levi Strauss & Co.®, Design Within Reach®, TOMS Shoes®, and Carter's® among others.
Our executive advisors include several exceptional leaders in the business community, including David Mossé and Darrell Kopke. A retail veteran and investment executive, David is currently Partner and General Counsel at the private equity firm TPG Growth. As General Manager of lululemon® from start-up through IPO, Darrell led many facets of the yoga brand's explosive growth. Darrell is currently Founder and CEO of Ædelhard®.
Organization and financials
We intend to become a Certified B Corporation® and to partner with bluesign®, TerraPass®, Surfrider®, Oceana® and others. 3% of our sales will be donated to the local ocean non-profit organization of our customers' choice. We strongly believe in doing well by doing good, and in giving back to our local communities in an exceptional manner.
While we seek $1.5 million in Seed Capital to execute our business strategy, we believe we could start the business with as little as $250,000 in additional capital. As a direct-to-consumer brand in the performance apparel space, we expect to achieve particularly strong gross margins similar to the levels experienced by lululemon®.
Once again, we welcome you to join us on this exceptionally exciting journey.
What does your company do?
LOCL® is creating a premium niche in the global surfwear market. After our debut in 2020, we intend to grow our range and become synonymous with the highest levels of performance, quality and style. Our mission is to become the world’s most culturally distinctive and respected surfing apparel brand through an unwavering commitment to quality, design, innovation, customer experience, and social and environmental causes.
Where will your company be in 5 years?
Recognized globally as the finest surfing apparel brand in the world.
Why did you choose this idea?
Passionate surfers around the world lack a premium brand to embrace. Today's surfwear brands all target the same market: youth. LOCL® will elevate the market and create the finest surfing apparel in the world. We plan to give 3% of our sales to ocean-focused non-profits and become a Certified B Corporation®.
Why is this a good idea, right now? What changed in the world? Why wasn't this done a few years ago?
The oceans and our planet need more companies focused on giving back and becoming part of the solution, not another part of the problem. LOCL® will not only meet a large need in the market for premium surfing apparel, but will do so through partnerships with organizations such as bluesign®, Oceana®, Surfrider®, TerraPass® and others. The world continues to become increasingly connected, and we believe in the power of the surfing community to help us do things never before seen in the history of our sport. Supporting us represents giving back to the community and being part of the solution.
What is your proudest accomplishment?
The development of our team. This includes contribution from highly prominent members of the investment community, world-class creatives, and an amazing partnership with the award-winning British designer behind many of the most iconic styles of the upscale cycling brand Rapha®. Please see our Foundation Collection attached to this campaign for more. Together, we have designed a powerful and inspiring brand, and a beautiful range of designs that honors the rich heritage of the sport and culture of surfing, while pushing the industry forward with highly sophisticated styling, world-class fabrics and state-of-the-art manufacturing.
How far along are you? What's your biggest obstacle?
Although we incorporated LOCL Enterprises Inc. d/b/a LOCL (a Delaware Corporation) in January '19, we have accomplished several significant milestones. These include: advisory board development; trademarking of "LOCL"; completion of logo and brand guidelines (from the brilliant minds behind Warby Parker's® branding); multi-season Foundation Collection design; sourcing of world-class textile partners and production manufacturers; and more. With funding from the WeFunder community and others, we will launch the LOCL® brand in 2020. Currently, our biggest obstacle is access to capital.
Who are your competitors? Who is the biggest threat?
We expect to directly compete with Patagonia®, a company with mountain roots and a significant global presence. On a casual lifestyle level, we also expect to compete with James Perse®, Outerknown® and several other fashion brands. To a lesser extent, we will compete with various surf-brands, the majority of which focus their marketing efforts on a significantly younger and less educated market. These brands include Volcom®, Hurley®, Quiksilver®, Billabong®, Hollister®, Rusty®, RVCA®, Rip Curl®, and O’Neill® among others. While these brands are well-known, they do not effectively address the unique lifestyle, fit, quality, performance or brand experience expectations of our more upscale adult target market.
What do you understand that your competitors don't?
I grew up surfing Malibu in Los Angeles, California, and have been a passionate surfer for 30+ years. I clearly see that the majority of the surfwear market (e.g., Hurley®, Quiksilver®, Volcom®) continue to (justifiably) focus on youth. Youth is in the DNA of these brands. LOCL® plans to bring the quality of surfing apparel up several notches and to exclusively focus on a more educated, mature and sophisticated target market. We believe this premium segment of the market is significantly underserved, and that a beautiful, authentic and inspirational brand such as ours would be very well received by consumers.
How will you make money?
We will make money by selling surfing apparel and accessories via "direct-to-consumer" channels, including our website, our social media sites and through our mobile, pop-up and permanent LOCL® Ocean Clubs. As we become more established, we will explore offering services such as world-class travel experiences and the expansion of categories (e.g., luggage). We want to control our relationships with our customers and will not feature our products in traditional surf shops or any other channels other than our own. This is the new age of retail and the approach of highly successful young brands including Rapha®, Allbirds® and Warby Parker®.
What are the biggest risks? If you fail, what would be the reason? What has to go right for you to succeed?
Our biggest risk at the moment is access to capital to do the things we hope to do. To mitigate this risk, we plan to be careful with our spending, and work to strengthen our balance sheet and cash position. Certainly, a plethora of other risks exist, but should we fail it will most likely be due to not having enough capital. With proper capitalization, we expect to create a modern luxury brand that undeniably creates new standards in the market both in terms of product quality and customer experience, as well as social and environmental giving. To succeed, we need cash, a dynamic team, great partnerships, and a well-executed business strategy.
What do you need the most help with?
Social media development and growth will be critical for our brand. Once we have product ready and a brand to launch in 2020, we will need help spreading the good word to thousands (millions!) of people. In short, we will need PR/press assistance; social marketing and influencer assistance; and flexible financial support.
What would you do with $20,000? How about $100,000?
With $20,000 we would complete the prototype development of the first phase of our Foundation Collection, which includes our Classic Boardshort, Resort Boardshort, California Heritage Boardshort, Merino Baselayers and Wetsuit Top. We are currently working on these prototypes through strong partnerships in California, Switzerland and Portugal. With $100,000 we would develop the brand to a state that we believe would properly showcase our vision (through product, brand imagery and digital development), and then be well-positioned to raise additional capital to launch the brand in 2020. While we aim to raise $1,500,000 in Seed Capital, we believe we could start the business with as little as $250,000 in additional capital.
Didn't Kelly Slater recently start a high-end label? How will LOCL® differentiate?
11X Surfing World Champion Kelly Slater recognized a similar opportunity as we did, but their brand approach is considerably different to ours. Yes, he is the King of Surfing (the absolute GOAT), but we feel we are taking a more unique, passionate and heritage-inspired approach to the premium segment of the surfwear market. Kelly's creative director helped bring the world the mass market brand Hollister®, which is completely based on a fictional story. We come to the market as industry outsiders similar to how Rapha® passionately approached the premium cycling market.
LOCL® has financial statements ending July 17 2019.
Our cash in hand is $4,916.15, as of July 2019. Over the three months prior, revenues averaged $0/month, cost of goods sold has averaged $0/month, and operational expenses have averaged $587.29/month.
At a Glance
to December 31
Short Term Debt
Raised in 2019
Cash on Hand
Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included elsewhere in this offering. Some of the information contained in this discussion and analysis, including information regarding the strategy and plans for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
LOCL Enterprises Inc. d/b/a LOCL (the "Company") is a premium, digitally-focused lifestyle brand that designs, develops, markets and and sells high-quality surfing apparel. LOCL is developing in response to the following facts and trends: (1) with an estimated global population of 25+ million, surfing is more popular than ever, and growth trends, particularly among adults, continue globally (source: Global Industry Analysts, 2019); and (2) a premium brand that effectively addresses the growing adult segment in the multi-billion dollar surf-wear industry does not exist.
We expect that the first LOCL line will debut in Autumn 2019. After our debut, we intend to grow the LOCL range and become synonymous with the highest levels of performance, quality and style. Our mission is to become the world’s most culturally distinctive and respected surfing apparel brand through an unwavering commitment to quality, innovation, design, customer experience, and social and environmental causes.
LOCL Enterprises Inc. was incorporated in January 2019. Since then, we have accomplished several significant milestones, including: advisory board development; trademarking of "LOCL"; completion of logo and brand guidelines; multi-season Foundation Collection design; sourcing of textile partners and production manufacturers; and more.
Historical Results of Operations
Our company was organized in January 2019 and has limited operations upon which prospective investors may base an evaluation of its performance.
Revenues & Gross Margin. For the period ended July 17, 2019, the Company had revenues of $0.
Assets. As of July 17, 2019, the Company had total assets of $13,076.45, including $4,916.15 in cash.
Net Loss. The Company has had net losses of $2,823.55 for 2019.
Liabilities. The Company's liabilities totaled $0 for 2019.
Liquidity & Capital Resources
To-date, the company has been financed with $15,900 in equity.
After the conclusion of this Offering, should we hit our minimum funding target, our projected runway is approximately six months before we need to raise further capital.
We plan to use the proceeds as set forth in this Form C under "Use of Funds". We don’t have any other sources of capital in the immediate future.
We will likely require additional financing in excess of the proceeds from the Offering in order to perform operations over the lifetime of the Company. We plan to raise capital in three months. Except as otherwise described in this Form C, we do not have additional sources of capital other than the proceeds from the offering. Because of the complexities and uncertainties in establishing a new business strategy, it is not possible to adequately project whether the proceeds of this offering will be sufficient to enable us to implement our strategy. This complexity and uncertainty will be increased if less than the maximum amount of securities offered in this offering is sold. The Company intends to raise additional capital in the future from investors. Although capital may be available for early-stage companies, there is no guarantee that the Company will receive any investments from investors.
Runway & Short/Mid Term Expenses
LOCL Enterprises Inc. cash in hand is $4,916.15, as of July 2019. Over the last three months, revenues have averaged $0/month, cost of goods sold has averaged $0/month, and operational expenses have averaged $587.29/month, for an average burn rate of $587.29 per month. Our intent is to be profitable in 18 months.
There are not any material changes in our finances or operations that have occurred since the ending date of our financials (July 17, 2019). We do, however, plan to invest approximately $1,000 in photography equipment, and have already committed to $2,000 in marketing expenses related to our Wefunder campaign.
Over the next 3-6 months, we plan to complete the prototype development and testing of the first phase of our Foundation Collection (see attached), which will include 5-7 styles such as our Classic Boardshort and Merino Baselayers. To produce our first production run and "get into business" will require a total capital raise of at least $250,000. Other start-up costs will include: Website Design and Development ($25,000), Branding and Marketing ($25,000), Distribution Infrastructure ($10,000), Payroll ($25,000) and Travel ($10,000). To fund short-term operations, we aim to raise $250,000 to $1,500,000 in Seed Capital in 2019 from angel investors and crowdfunding efforts on WeFunder. While we have a very strong network of angel investors and venture capital firms, we cannot guarantee that we will be able to raise equity capital from these sources. We anticipate (although cannot guarantee) revenue generation to begin in late 2019.
A note from Wefunder. Unlike companies on the NASDAQ, early-stage startups have little operating history. Financial analysis is not as useful when there is limited data. It's more important to predict the size of the future market. If the founder achieves their vision, will enough customers pay the company enough money?
It's also common for fast-growing startups to lose money even faster: they are investing in future growth. In these cases, it's often better to check if the Cost of User Acquisition (CAC) is lower than the Lifetime Value (LTV) of that customer. If one spends $1000 today to make $10,000 over the next five years, that may be a smart bet. Amazon is a famous example of re-investing potential profits to maximize growth over 20 years.
We operate in a highly competitive market and the size and resources of some of our competitors may allow them to compete more effectively than we can, resulting in lower net revenue and profitability than we predict. The market for technical surfing apparel is highly competitive. Competition may result in pricing pressures, reduced profit margins or lost market share, or a failure to grow our market share, any of which could substantially harm our business and results of operations. We compete directly against wholesalers and direct retailers of surfing apparel, including large, diversified apparel companies with substantial market share and established companies expanding their production and marketing of technical apparel, as well as against retailers specifically focused on surfing apparel. We also face competition from wholesalers and direct retailers of traditional commodity surfing apparel, such as cotton T-shirts and sweatshirts.
Our reliance on suppliers to provide fabrics for and to produce our products could cause problems in our supply chain. We do not manufacture our products or the raw materials for them and rely instead on suppliers. Many of the specialty fabrics used in our products are technically advanced textile products developed and manufactured by third parties and may be available, in the short-term, from only one or a very limited number of sources. We have no long-term contracts with any of our suppliers or manufacturing sources for the production and supply of our fabrics and garments, and we compete with other companies for fabrics, raw materials, and production. We may in the future experience a significant disruption in the supply of fabrics or raw materials from current sources and we may be unable to locate alternative materials suppliers of comparable quality at an acceptable price, or at all. In addition, if we experience significant increased demand, or if we need to replace an existing supplier or manufacturer, we may be unable to locate additional supplies of fabrics or raw materials or additional manufacturing capacity on terms that are acceptable to us, or at all, or we may be unable to locate any supplier or manufacturer with sufficient capacity to meet our requirements or to fill our orders in a timely manner.
Our success depends on our ability to develop and maintain the value and reputation of the LOCL brand. Our brand name is integral to our business as well as to the implementation of our strategies for expanding our business. Developing, maintaining, promoting, and positioning our brand will depend largely on the success of our marketing and merchandising efforts and our ability to provide a consistent, high-quality product, and guest experience. We will rely on social media, as one of our marketing strategies, to have a positive impact on both our brand value and reputation. Our brand and reputation could be adversely affected if we fail to achieve these objectives, if our public image was to be tarnished by negative publicity or if we fail to deliver innovative and high-quality products acceptable to our guests. Negative publicity regarding the production methods of any of our suppliers or manufacturers could adversely affect our reputation and sales and force us to locate alternative suppliers or manufacturing sources. Additionally, while we devote considerable efforts and resources to protecting our intellectual property, if these efforts are not successful the value of our brand may be harmed. Any harm to our brand and reputation could have a material adverse effect on our financial condition.
If any of our products are unacceptable to us or our guests, our business could be harmed. We may in the future receive shipments of products that fail to comply with our technical specifications or that fail to conform to our quality control standards. In the future, we may receive products that are otherwise unacceptable to us or our guests. Under these circumstances, unless we are able to obtain replacement products in a timely manner, we risk the loss of net revenue resulting from the inability to sell those products and related increased administrative and shipping costs. Additionally, if the unacceptability of our products is not discovered until after such products are purchased by our guests, our guests could lose confidence in our products or we could face a product recall and our results of operations could suffer and our business, reputation, and brand could be harmed.
The Company may never receive a future equity financing or elect to convert the securities upon such future financing. In addition, the Company may never undergo a liquidity event such as a sale of the Company or an IPO. If neither the conversion of the securities nor a liquidity event occurs, the purchasers could be left holding the securities in perpetuity. The securities have numerous transfer restrictions and will likely be highly illiquid, with no secondary market on which to sell them. The securities have no rights to the Company’s assets or profits and have limited ability to direct the Company or its actions.
Our future success depends on the efforts of a small management team. The loss of services of the members of the management team may have an adverse effect on the company. There can be no assurance that we will be successful in attracting and retaining other personnel we require to successfully grow our business.
Our future success is substantially dependent on the service of our senior management and other key employees. The performance of our senior management team and other key employees may not meet our needs and expectations. Also, the loss of services of any of these key employees, or any negative public perception with respect to these individuals, may be disruptive to, or cause uncertainty in, our business and could have a negative impact on our ability to manage and grow our business effectively. Such disruption could have a material adverse impact on our financial performance and financial condition. We do not maintain a key person life insurance policy on any of the members of our senior management team. As a result, we would have no way to cover the financial loss if we were to lose the services of members of our senior management team.
An economic downturn or economic uncertainty in our key markets may adversely affect consumer discretionary spending and demand for our products. Many of our products may be considered discretionary items for consumers. Factors affecting the level of consumer spending for such discretionary items include general economic conditions, particularly those in North America, and other factors such as consumer confidence in future economic conditions, fears of recession, the availability and cost of consumer credit, levels of unemployment, and tax rates. As global economic conditions continue to be volatile or economic uncertainty remains, trends in consumer discretionary spending also remain unpredictable and subject to reductions due to credit constraints and uncertainties about the future. Unfavorable economic conditions may lead consumers to delay or reduce purchases of our products. Consumer demand for our products may not reach our targets, or may decline, when there is an economic downturn or economic uncertainty in our key markets, particularly in North America. Our sensitivity to economic cycles and any related fluctuation in consumer demand may have a material adverse effect on our financial condition.
Our sales and profitability may decline as a result of increasing product costs and decreasing selling prices. Our business is subject to significant pressure on costs and pricing caused by many factors, including intense competition, constrained sourcing capacity and related inflationary pressure, pressure from consumers to reduce the prices we charge for our products, and changes in consumer demand. These factors may cause us to experience increased costs, reduce our prices to consumers or experience reduced sales in response to increased prices, any of which could cause our operating margin to decline if we are unable to offset these factors with reductions in operating costs and could have a material adverse effect on our financial condition, operating results, and cash flows.
If we are unable to anticipate consumer preferences and successfully develop and introduce new, innovative, and updated products, we may not be able to maintain or increase our sales and profitability. Our success depends on our ability to identify and originate product trends as well as to anticipate and react to changing consumer demands in a timely manner. All of our products are subject to changing consumer preferences that cannot be predicted with certainty. If we are unable to introduce new products or novel technologies in a timely manner or our new products or technologies are not accepted by our guests, our competitors may introduce similar products in a more timely fashion, which could hurt our goal to be viewed as a leader in technical surfing apparel innovation. Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of surfing apparel or away from these types of products altogether, and our future success depends in part on our ability to anticipate and respond to these changes. Our failure to anticipate and respond in a timely manner to changing consumer preferences could lead to, among other things, lower sales and excess inventory levels. Even if we are successful in anticipating consumer preferences, our ability to adequately react to and address those preferences will in part depend upon our continued ability to develop and introduce innovative, high-quality products. Our failure to effectively introduce new products that are accepted by consumers could result in a decrease in net revenue and excess inventory levels, which could have a material adverse effect on our financial condition.
Our results of operations could be materially harmed if we are unable to accurately forecast customer demand for our products. To ensure adequate inventory supply, we must forecast inventory needs and place orders with our manufacturers based on our estimates of future demand for particular products. Our ability to accurately forecast demand for our products could be affected by many factors, including an increase or decrease in customer demand for our products or for products of our competitors, our failure to accurately forecast customer acceptance of new products, product introductions by competitors, unanticipated changes in general market conditions, and weakening of economic conditions or consumer confidence in future economic conditions. If we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage of products available for sale in our stores or for delivery to guests. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs and the sale of excess inventory at discounted prices, which would cause our gross margin to suffer and could impair the strength and exclusivity of our brand. Conversely, if we underestimate customer demand for our products, our manufacturers may not be able to deliver products to meet our requirements, and this could result in damage to our reputation and guest relationships.
Our inability to safeguard against security breaches or our failure to comply with data privacy laws could damage our customer relationships and result in significant legal and financial exposure. As part of our normal operations, we receive confidential, proprietary, and personally identifiable information, including credit card information, and information about our customers, our employees, job applicants, and other third parties. Our business employs systems and websites that allow for the storage and transmission of this information. However, despite our safeguards and security processes and protections, security breaches could expose us to a risk of loss or misuse of this information, and could result in litigation and potential liability.
Additionally, the European Union has adopted a comprehensive General Data Privacy Regulation (the "GDPR"). The GDPR requires companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. Failure to comply with GDPR requirements could result in penalties of up to four percent of worldwide revenue. The GDPR and other similar laws and regulations, as well as any associated inquiries or investigations or any other government actions, may be costly to comply with, increase our operating costs, require significant management time and attention, and subject us to remedies that may harm our business, including fines, negative publicity, or demands or orders that we modify or cease existing business practices.
Any material disruption of our information technology systems or unexpected network interruption could disrupt our business and reduce our sales. We are increasingly dependent on information technology systems and third-parties to operate our e-commerce websites, process transactions, respond to customer inquiries, manage inventory, purchase, sell and ship goods on a timely basis, and maintain cost-efficient operations. The failure of our information technology systems to operate properly or effectively, problems with transitioning to upgraded or replacement systems, or difficulty in integrating new systems, could adversely affect our business.
If the technology-based systems that give our customers the ability to shop with us online do not function effectively, our operating results, as well as our ability to grow our e-commerce business globally, could be materially adversely affected. Many of our customers will shop with us through our e-commerce website. Increasingly, customers are using tablets and smart phones to shop online with us and with our competitors and to do comparison shopping. We will increasingly use social media and proprietary mobile apps to interact with our customers and as a means to enhance their shopping experience. Any failure on our part to provide attractive, effective, reliable, user-friendly e-commerce platforms that offer an assortment of merchandise with rapid delivery options and that continually meet the changing expectations of online shoppers could place us at a competitive disadvantage, result in the loss of e-commerce and other sales, harm our reputation with customers, have a material adverse impact on the growth of our e-commerce business globally and could have a material adverse impact on our business and results of operations.
The fluctuating cost of raw materials could increase our cost of goods sold and cause our results of operations and financial condition to suffer. Our costs for raw materials are affected by, among other things, weather, consumer demand, speculation on the commodities market, the relative valuations and fluctuations of the currencies of producer versus consumer countries, and other factors that are generally unpredictable and beyond our control. Increases in the cost of raw materials could have a material adverse effect on our cost of goods sold, results of operations, financial condition, and cash flows.
Our limited operating experience and limited brand recognition in both domestic and new international markets may limit our expansion and cause our business and growth to suffer. Our future growth depends in part on our expansion efforts outside of North America. We have limited experience with regulatory environments and market practices internationally, and we may not be able to penetrate or successfully operate in any new market. In connection with our expansion efforts we may encounter obstacles not faced in North America, including cultural and linguistic differences, differences in regulatory environments, labor practices and market practices, difficulties in keeping abreast of market, business and technical developments, and foreign customers' tastes and preferences. We may also encounter difficulty expanding into new international markets because of limited brand recognition leading to delayed acceptance of our technical surfing apparel by customers in these new international markets. Our failure to develop our business in international markets could harm our business and results of operations.
If we encounter problems with our distribution system, our ability to deliver our products to the market and to meet customer expectations could be harmed. We will rely on our distribution facilities for substantially all of our product distribution. Our distribution facilities will include computer controlled and automated equipment, which means their operations may be subject to a number of risks related to security or computer viruses, the proper operation of software and hardware, electronic or power interruptions, or other system failures. In addition, our operations could also be interrupted by labor difficulties, extreme or severe weather conditions or by floods, fires, or other natural disasters near our distribution centers. If we encounter problems with our distribution system, our ability to meet customer expectations, manage inventory, complete sales, and achieve objectives for operating efficiencies could be harmed.
Our fabrics and manufacturing technology generally are not patented and can be imitated by our competitors. The intellectual property rights in the technology, fabrics, and processes used to manufacture our products generally are owned or controlled by our suppliers and are generally not unique to us. Our ability to obtain intellectual property protection for our products is therefore limited and we do not generally own patents or hold exclusive intellectual property rights in the technology, fabrics or processes underlying our products. As a result, our current and future competitors are able to manufacture and sell products with performance characteristics, fabrics and styling similar to our products. Because many of our competitors have significantly greater financial, distribution, marketing, and other resources than we do, they may be able to manufacture and sell products based on our fabrics and manufacturing technology at lower prices than we can. If our competitors do sell similar products to ours at lower prices, our net revenue and profitability could suffer.
Our failure or inability to protect our intellectual property rights could diminish the value of our brand and weaken our competitive position. We currently rely on a combination of copyright, trademark, trade dress, and unfair competition laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our intellectual property rights. The steps we take to protect our intellectual property rights may not be adequate to prevent infringement of these rights by others, including imitation of our products and misappropriation of our brand. In addition, intellectual property protection may be unavailable or limited in some foreign countries where laws or law enforcement practices may not protect our intellectual property rights as fully as in the United States, and it may be more difficult for us to successfully challenge the use of our intellectual property rights by other parties in these countries. If we fail to protect and maintain our intellectual property rights, the value of our brand could be diminished, and our competitive position may suffer.
If we grow at a rapid pace, we may not be able to effectively manage our growth and the increased complexity of our business and as a result our brand image and financial performance may suffer. If our operations grow at a rapid pace, we may experience difficulties in obtaining sufficient raw materials and manufacturing capacity to produce our products, as well as delays in production and shipments, as our products are subject to risks associated with overseas sourcing and manufacturing. We could be required to continue to expand our sales and marketing, product development and distribution functions, to upgrade our management information systems and other processes and technology, and to obtain more space for our expanding workforce. This expansion could increase the strain on our resources, and we could experience operating difficulties, including difficulties in hiring, training, and managing an increasing number of employees. These difficulties could result in the erosion of our brand image which could have a material adverse effect on our financial condition.
Our business is affected by the general seasonal trends common to the retail apparel industry. This seasonality may adversely affect our business and cause our results of operations to fluctuate, and, as a result, we believe that comparisons of our operating results between different quarters within a single fiscal year are not necessarily meaningful and that results of operations in any period should not be considered indicative of the results to be expected for any future period.
Our trademarks and other proprietary rights could potentially conflict with the rights of others and we may be prevented from selling some of our products. Our success depends in large part on our brand image. We believe that our trademarks and other proprietary rights have significant value and are important to identifying and differentiating our products from those of our competitors and creating and sustaining demand for our products. We have applied for and obtained some United States trademark registrations, and will continue to evaluate the registration of additional trademarks as appropriate. However, some or all of these pending trademark applications may not be approved by the applicable governmental authorities. Moreover, even if the applications are approved, third parties may seek to oppose or otherwise challenge these registrations. Additionally, we may face obstacles as we expand our product line and the geographic scope of our sales and marketing. Third parties may assert intellectual property claims against us, particularly as we expand our business and the number of products we offer. Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert management resources. Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products. In addition, resolution of claims may require us to redesign our products, license rights from third parties, or cease using those rights altogether. Any of these events could harm our business and cause our results of operations, liquidity, and financial condition to suffer.
While we are not currently involved in any litigation, we are subject to periodic claims that could result in unexpected expenses and could ultimately be resolved against us. From time to time, we may be involved in litigation and other proceedings, including matters related to product liability claims, stockholder class action and derivative claims, commercial disputes and intellectual property, as well as trade, regulatory, employment, and other claims related to our business. Any of these proceedings could result in significant settlement amounts, damages, fines, or other penalties, divert financial and management resources, and result in significant legal fees. An unfavorable outcome of any particular proceeding could exceed the limits of our insurance policies or the carriers may decline to fund such final settlements and/or judgments and could have an adverse impact on our business, financial condition, and results of operations. In addition, any proceeding could negatively impact our reputation among our customers and our brand image.
Our business could be negatively affected as a result of actions of activist stockholders or others. We may be subject to actions or proposals from stockholders or others that may not align with our business strategies or the interests of our other stockholders. Responding to such actions can be costly and time-consuming, disrupt our business and operations, and divert the attention of our board of directors, management, and employees from the pursuit of our business strategies. Such activities could interfere with our ability to execute our strategic plan. Activist stockholders or others may create perceived uncertainties as to the future direction of our business or strategy which may be exploited by our competitors and may make it more difficult to attract and retain qualified personnel and potential customers, and may affect our relationships with current customers, vendors, investors, and other third parties.
Jonathan Rath is a part-time officer. As such, it is likely that the company will not make the same progress as it would if that were not the case.
The Board of Directors
Senior Practice Director @ Oracle NetSuite
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