Neiman Marcus 2005 Annual Report Download - page 9

We maintain an active calendar of in-store events to promote our sales efforts. The activities include in-store visits and trunk
shows by leading designers featuring the newest fashions from the designer, in-store promotions of the merchandise of selected designers
or merchandise categories, often through events conducted in connection with our loyalty programs, and participation in charitable
functions in each of our markets. Past trunk shows and in-store promotions at our Neiman Marcus and Bergdorf Goodman stores have
featured designers such as Chanel, Giorgio Armani and Oscar de la Renta.
Through our print media programs, we mail various publications to our customers communicating upcoming in-store events,
new merchandise offerings and fashion trends. In connection with these programs, Neiman Marcus produces The Book® approximately
eight to nine times each year. The Book is a high-quality publication featuring the latest fashion trends that is mailed on a targeted basis to
our customers and has a yearly printing in excess of 3.4 million. Our other print publications include The Book for Men, the Bergdorf
Goodman Magazine and specific designer mailers. Recently, we added The Addition®, which identifies for our younger, aspirational
customers, as well as our core customers, "must have items" for the current season.
We also believe that the online and print catalog operations of Direct Marketing promote brand awareness, which benefits the
operations of our retail stores.
Loyalty Programs. We maintain a loyalty program under the InCircle® brand name designed to cultivate long-term
relationships with our customers. Our loyalty program focuses on our most active customers. This program includes marketing features,
including private in-store events, special magazine issues, as well as the ability to accumulate points for qualifying purchases. Increased
points are periodically offered in connection with in-store promotional and other events. Upon attaining specified point levels, customers
may redeem their points for a wide variety of gifts ranging from gift cards to designer merchandise and trips to exotic locations.
Approximately 46% of revenues at Neiman Marcus stores in calendar years 2005 and 2004 were generated by our InCircle members.
Beginning in calendar 2006, we transitioned customers in our previous Bergdorf Goodman loyalty program to our InCircle loyalty
program.
Proprietary Credit Card Program. We maintain a proprietary credit card program through which we facilitate the extension of
credit to customers under the "Neiman Marcus" and "Bergdorf Goodman" names.
On July 7, 2005, HSBC purchased our approximately three million private label Neiman Marcus and Bergdorf Goodman credit
card accounts and related assets, as well as the outstanding balances associated with such accounts. The total purchase price was
approximately $647 million, consisting of approximately $534 million in net cash proceeds and the assumption of approximately
$113 million of outstanding debt under our Credit Card Facility.
As a part of the Credit Card Sale, we entered into a long-term marketing and servicing alliance with HSBC. Under the terms of
this alliance, HSBC offers credit cards and non-card payment plans bearing our brands and we receive from HSBC ongoing payments
related to credit card sales and compensation for marketing and servicing activities (HSBC Program Income). During fiscal year 2006, we
outsourced various administrative elements of the proprietary credit card program, including the processing of data with respect to our
proprietary credit card program to HSBC as provided for in the program agreement with HSBC. We continue to handle key customer
service functions, primarily customer inquiries.
Subsequent to the Credit Card Sale, we have changed and may continue to change, the terms of credit offered to our customers.
In addition, HSBC will have discretion over certain policies and arrangements with credit card customers and may change these policies
and arrangements in ways that affect our relationship with these customers. Any such changes in our credit card arrangements may
adversely affect our credit card program and ultimately, our business.
Historically, our customers holding a proprietary credit card have tended to shop more frequently and have a higher level of
spending than customers paying with cash or third-party credit cards. In fiscal years 2006 and 2005, approximately 54% of our revenues
were transacted through our proprietary credit cards.
We utilize data captured through our proprietary credit card program in connection with promotional events and customer
relationship programs targeting specific customers based upon their past spending patterns for certain brands, merchandise categories and
store locations.
Integrated Multi-Channel Model. We offer products through our complementary Direct Marketing and Specialty Retail
businesses, which enables us to maximize our brand recognition and strengthen our customer relationships across all channels. Our well-
established catalog and online operation expands our reach beyond the trading area of our retail stores, as approximately 46% and 50%,
respectively, of our Direct Marketing customers in fiscal years 2006 and 2005 were located outside of the trade areas of our existing retail
locations. We also use our catalogs and e-commerce websites as selling and marketing tools to increase the visibility and exposure of our
brand and generate customer traffic within our retail stores. We believe the combination of our retail stores and direct selling efforts is the
main reason that our multi-channel customers spend more on average than our single-channel customers (approximately 3.6 times more
in fiscal year 2006 and 3.5 times more in fiscal year 2005).
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