Neiman Marcus 2007 Annual Report Download - page 18

Table of Contents
The loss of any of our senior management team or attrition among our buyers or key sales associates could adversely affect
our business.
Our success in the specialty retail industry will continue to depend to a significant extent on our senior management team,
buyers and key sales associates. We rely on the experience of our senior management, who have specific knowledge relating to us and
our industry that would be difficult to replace. If we were to lose a portion of our buyers or key sales associates, our ability to benefit
from long-standing relationships with key vendors or to provide relationship-based customer service may suffer. We may not be able
to retain our current senior management team, buyers or key sales associates and the loss of any of these individuals could adversely
affect our business.
Inflation may adversely affect our business operations in the future.
In recent years, we have experienced certain inflationary conditions in our cost base due primarily to (1) changes in foreign
currency exchange rates that have reduced the purchasing power of the U.S. dollar, (2) increases in selling, general and administrative
expenses, particularly with regard to employee benefits and (3) increases in fuel prices and costs impacted by increases in fuel prices,
such as freight and transportation costs. Inflation can harm our margins and profitability if we are unable to increase prices or cut costs enough to offset
the effects of inflation in our cost base. If inflation in these or other costs worsens, we may not be able to offset the effects of inflation and cost increases
through control of expenses, passing cost increases on to customers or any other method. Any future inflation could adversely affect our profitability and our
business.
Failure to maintain competitive terms under our loyalty programs could adversely affect our business.
We maintain loyalty programs that are designed to cultivate long-term relationships with our customers and enhance the
quality of service we provide to our customers. We must constantly monitor and update the terms of our loyalty programs so that they
continue to meet the demands and needs of our customers and remain competitive with loyalty programs offered by other high-end
specialty retailers. Given that approximately 40% of our revenues during each of the last two calendar years was generated by our
InCircle loyalty program members, our failure to continue to provide quality service and competitive rewards to our customers
through the InCircle loyalty program could adversely affect our business.
Changes in our credit card arrangements, applicable regulations and consumer credit patterns could adversely impact our
ability to facilitate the provision of consumer credit to our customers and adversely affect our business.
We maintain a proprietary credit card program through which credit is extended to customers under the "Neiman Marcus"
and "Bergdorf Goodman" names. Because a majority of our revenues are transacted through our proprietary credit cards, changes in
our proprietary credit card arrangement that adversely impact our ability to facilitate the provision of consumer credit may adversely
affect our performance.
We entered into a five-year program agreement with HSBC in July 2005 which provides for a long-term marketing and
servicing alliance under which HSBC offers proprietary credit card accounts to our customers under both the "Neiman Marcus" and
"Bergdorf Goodman" brand names.
Under the terms of this alliance, HSBC offers credit cards and non-card payment plans and bears substantially all credit risk
with respect to sales transacted on the cards bearing our brands. We receive ongoing payments from HSBC related to credit card sales
and compensation for marketing and servicing activities. During fiscal year 2006, we outsourced various administrative elements of
the proprietary credit card program to HSBC, including the processing of data, although we continue to handle key customer service
functions, including customer inquiries and collections.
HSBC has discretion over certain policies and arrangements with our credit card customers and may change these policies
and arrangements in ways that affect our relationship with these customers. In addition, there can be no assurance that, upon
expiration of our current alliance with HSBC, that we will be able to enter into a replacement arrangement on terms comparable to the
current arrangement. Any changes in our credit card arrangements may adversely affect our credit card program and ultimately, our
business.
Credit card operations are subject to numerous federal and state laws that impose disclosure and other requirements upon the
origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be
charged by a credit provider. Any regulation or change in the regulation of credit arrangements that would materially limit the
availability of credit to our customer base could adversely affect our business. In addition, changes in credit card use, payment
patterns, and default rates may result from a variety of economic, legal, social, and other factors that we cannot control or predict with
certainty.
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