Neiman Marcus 2007 Annual Report Download - page 9

Table of Contents
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. Beginning in calendar 2006, we transitioned customers in our previous Bergdorf Goodman loyalty program to our
InCircle loyalty program. Approximately 40% of our revenues during each of the last two calendar years was generated by our
InCircle loyalty program members.
Proprietary Credit Card Program. Pursuant to a five-year program agreement entered into in July 2005 (Program
Agreement), we entered into a long-term marketing and servicing alliance with HSBC Bank Nevada, N.A. and HSBC Private Label
Corporation (formerly known as Household Corporation) (collectively referred to as HSBC) whereby 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 (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 and collections.
In connection with our agreement with HSBC, 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.
On April 21, 2008, we entered into an amendment to the Program Agreement, dated as of June 8, 2005, with HSBC. The
amendment was entered into subsequent to the filing of a lawsuit by the Company against HSBC alleging a breach of the Program
Agreement, as well as other claims, and an application for the granting of a temporary restraining order and other injunctive relief. The
amendment, among other things, provides for 1) the allocation between HSBC and NMG of additional income, if any, to be generated
from the credit card program as a result of certain changes made to the Program Agreement, 2) the allocation of certain credit card
losses between HSBC and NMG (subject to a contractual limit on the losses allocable to NMG) and 3) the dismissal of the lawsuit and
temporary restraining order without prejudice. We do not expect that the amendment will have a material impact on the level of our
future income under the Program Agreement.
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 2008 and 2007, approximately 55% 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 over 40% of our Direct
Marketing customers in fiscal years 2008 and 2007 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 (over 3 times more in each of fiscal years
2008 and 2007).
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