Risks, uncertainties and risk management

A number of operational and financial risks internally and externally could affect Björn Borg’s results and operations.

Financial risks

Through its operations, Björn Borg is exposed to currency, interest rate, credit and counterparty risks as well as liquidity and refinancing risks. The Board has decided how the Group will manage these risks.

Market risks

Björn Borg is active in the highly competitive fashion industry. The company’s vision is to solidify Björn Borg’s position as a global fashion brand. Competitors control national and international brands, usually focused on the same markets. They often have substantial financial and human resources. While Björn Borg has so far managed to hold its own in competition with other players, there are no guarantees it will be able to continue to compete with current and future brands.

Legal risks

Björn Borg sells consumer products. There is a risk that the products in question could be associated with safety risks or harm users for other reasons. In certain countries such as the US, this type of product responsibility can lead to claims for damages by those affected, which could adversely impact the company’s results and reputation. While it takes preventive measures, Björn Borg faces the risk that the marketing or sale of its products could infringe on a third party’s intellectual property, and it could be accused, for example, of illegally using another party’s trademarked or copyrighted material. Such a claim could leave the company liable for damages that adversely impact results and potentially harm the company’s reputation.

Expansion of operations

The company’s future growth is dependent on the network’s ability to increase sales through existing channels, but also on identifying new geographical markets for the company’s products. The opportunity to find new markets for Björn Borg is partly dependent on factors beyond the company’s control such as economic conditions, trade barriers and access to attractive retail locations on commercially viable terms.

Network

The company’s position and future expansion are dependent in part on independent entrepreneurs that serve as product companies, distributors and franchisees in the network. Despite that Björn Borg generally has effective, extensive contractual relationships, directly or indirectly, with outside parties in the network, these agreements can be terminated and there are no guarantees that similar agreements can be signed. The termination of a collaboration with one or more entrepreneurs in the network could adversely impact the company’s growth and results. Björn Borg’s distribution model with external distributors – both its own and licensees’ – also creates the risk that these external parties do not make the investments or take the measures that are needed, for example, to achieve certain planned growth targets or certain types of changes.

Fashion trends

The company’s operations are affected by shifts in trends and fashions and consumer preferences with regard to design, quality and price point. Positioning relative to various competitors’ products is critical. In general, there is a positive connection between fashion level and business risk, with higher fashion involving a shorter product lifecycle and higher business risk. Sudden changes in fashion trends may reduce sales for some collections.

Cyclicality

Like all retail sales, the sale of the company’s products is affected by changes in economic conditions. A growing economy has a positive effect on household finances, which is reflected in spending patterns. A downturn in the economy has the opposite effect, which was especially evident in recent years, when instable demand in the market affected the Group’s underwear and sports apparel sales. The company’s profitability is also affected by changes in global commodity prices and by increased production, payroll and transport costs in the countries where the company buys its products.

Protection for the Björn Borg trademark

The Björn Borg trademark is crucial to the company’s position and success. Copyright infringements and distribution of pirated copies damage the Björn Borg brand, the reputational capital of its products and Björn Borg’s profitability. The online sale of pirated copies has increased in recent years. In addition to the risks associated with pirating, the opportunity to expand to new markets could be affected if, for example, a third party in another country has registered a trademark similar to Björn Borg. The company works continuously with trademark protection. There are no guarantees, however, that the measures taken to protect the Björn Borg trademark are sufficient.

Furthermore, the Björn Borg trademark is associated with Björn Borg the person. The trademark’s position is therefore dependent to some degree on whether Björn Borg himself is associated with the core values in the brand’s platform.

Reputational damage

The company’s reputation among customers is built on a consistent experience with Björn Borg products in the markets where they are available. Björn Borg products should be presented in a way that reflects the values that Björn Borg represents. If the parties in the network take any action that presents Björn Borg products in a way that conflicts with the company’s market positioning or the values the brand represents, Björn Borg’s reputation could be damaged. Examples of reputational damage include negative publicity about working conditions in the factories that manufacture Björn Borg products, prohibited chemicals, safety concerns associated with products or allegations of sexist or misogynous advertising. In the long term, reputational damage will harm the company’s growth and results.