Operational and industry-related risks

MARKET RISKS

Competition

Risk. Odd Molly is active in the highly competitive fashion industry, where several competitors are very large and have considerable capital, allowing them to adapt to changes in customer demand, devote considerable resources to marketing and design of their products, and achieve greater brand awareness. Increased competition could lead to price pressure and loss of market share for Odd Molly.

Management. As a distinctive brand, Odd Molly has the potential to assert itself well in the competition to date, but there is no guarantee that it will be able to assert itself well in the future. Odd Molly has a unique design concept that creates lasting value in its collections and its customer relations.

Supplier and labor risks

Risk. Odd Molly has no proprietary production and is totally dependent on its suppliers to supply merchandise. For Odd Molly, it is essential that goods are delivered on time. The loss of one or more suppliers or delay or loss of shipments could have an adverse impact on the company’s operations, results and financial position.

Management. The company uses a number of suppliers in different countries and, as a result, is not dependent on any single supplier for its operations.

Risk. Some of Odd Molly’s products are manufactured in developing countries, where working conditions and environmental regulations differ in many respects from the countries where the products are sold. Consumer product companies with suppliers in developing countries are susceptible to criticism of working conditions, product quality and environmental impacts. Adverse exposure due to such issues could affect trust in the company’s brand and lead to lower demand for its products.

Management. Since 2009 Odd Molly has been a member of the Fair Wear Foundation, which is working to improve conditions for employees at the factories that manufacture Odd Molly’s products. Odd Molly regularly visits its suppliers to ensure as far as possible that they comply with the Fair Wear Foundation’s Code of Labor Practices. Furthermore, Odd Molly continuously monitors that the suppliers comply with applicable chemical legislation and revises the supplier base accordingly.

Import quotas

Risk. Odd Molly purchases a portion of its products from countries outside the EU. As a way to strengthen certain industries in Europe, the EU has in some instances introduced import restrictions on goods such as clothing, which could impact procurement costs.

Management. Since Odd Molly’s product range maintains high quality and therefore commands a higher price, the potential impact is fairly limited compared with companies in the discount segment. Still, there is the possibility that future trade restrictions, including higher customs duties, protective measures or quotas on clothing, could force the company to change its procurement routines and raise procurement costs.

Economy

Risk. Economic conditions could raise or lower demand for Odd Molly’s products.

Management. Odd Molly has tried in recent years to create a more balanced product mix with a higher share of merchandise in the lower part of the pricing pyramid. Odd Molly has a price position it defines as “within reach.”

BUSINESS RISKS

Expansion through retailers

Risk. Odd Molly’s future growth is dependent on, among other things, the ability of current retailers to increase sales of Odd Molly’s products and on more retailers selling Odd Molly’s products.

Management. Odd Molly’s sells to external retailers in most markets through agents and distributors that are responsible for their respective markets. In 2018, the company also prepared a license model for implementation on most international markets. The license model creates significantly better conditions for a local partner to grow and invest in brand and distribution. The contract with licensees, agents and distributors establishes on market terms with clear requirements.

Dependent on or interruption of IT systems

Risk. The company intends to continue to grow digital sales, which is why the company’s operations will to a greater extent be dependent on a functioning IT system. The company is dependent on third-party suppliers for the operation of the web shop, which is why some of the potential operational problems lie outside the company’s direct control.

Handling. The company has very close cooperation with selected suppliers of IT systems and during the year has strengthened its own organization with expertise in the IT and e commerce area.

Changes in consumption patterns

Risk. Increasing digitization and e-commerce could adversely affect sales for the company’s physical stores and retailers.

Management. Odd Molly has an omnichannel strategy that includes a web shop which has produced profitable growth since the start. The various channels, it is felt, contribute to cross-selling. As part of the company’s strategic review, consolidation has been initiated by its own store network to meet changing consumption patterns.

Changes in demand

Risk. Odd Molly is highly dependent on customer preferences in terms of design, quality and price. A miscalculation of preferences could reduce demand for Odd Molly’s products, and in turn adversely impact the company’s operations, results and financial position.

Management. Odd Molly has an omnichannel strategy with sales at both the retail and wholesale level, which allows for flexibility in driving sales. Moreover, Odd Molly has a customer focus with an increased share of its own retail sales, bringing it closer to consumers. Odd Molly also has a clear style concept that balances shifts in fashion and trends.

Intellectual property protection

Risk. Odd Molly’s trademarks are fundamental to its position and success. Copying of Odd Molly’s trademarks or distribution and sale of Odd Molly products without the company’s consent could damage Odd Molly’s trademarks, customers’ trust in Odd Molly’s products and the company’s profitability. If Odd Molly’s trademarks are damaged, it could adversely impact the company’s operations, results and financial position. There is also the possibility that designers, stores and others may claim that Odd Molly’s products infringe on their intellectual property rights.

Management. Odd Molly actively protects its trademarks and maintains continuous trademark protection. There is no guarantee, however, that the measures Odd Molly takes to protect its intellectual property will be sufficient. Nor are there are any guarantees that claims will not be made against the company in the future. If the company cannot defend itself against such claims, it could damage its reputation and have a significant adverse impact on the company’s operations, results and financial position.