Neiman Marcus 2009 Annual Report Download - page 18

Table of Contents
We routinely evaluate the need to remodel our existing stores. In undertaking store remodels, we must complete the remodel
in a timely, cost effective manner, minimize disruptions to our existing operations, and succeed in creating an improved shopping
environment. If we fail to execute on these or other aspects of our store expansion and remodeling strategy, we could suffer harm to
our sales, an increase in costs and expenses and an adverse effect on our business.
We outsource certain business processes to third-party vendors that subject us to risks, including disruptions in business and
increased costs.
Some business processes that are dependent on technology are outsourced to third parties. Such processes include credit card
authorization and processing, insurance claims processing, payroll processing, record keeping for retirement and other benefit plans
and other accounting processes. In the second quarter of fiscal year 2010, we entered into agreements to outsource certain information
technology functions. In addition, we review outsourcing alternatives on a routine basis and may decide to outsource additional
business processes in the future. We make a diligent effort to ensure that all providers of outsourced services are observing proper
internal control practices, such as redundant processing facilities; however, there are no guarantees that failures will not occur. Failure
of third parties to provide adequate services could have an adverse effect on our results of operations, financial condition or ability to
accomplish our financial and management reporting.
Acts of terrorism could adversely affect our business.
The economic downturn that followed the terrorist attacks of September 11, 2001 had a material adverse effect on our
business. Any further acts of terrorism or other future conflicts may disrupt commerce and undermine consumer confidence, cause a
downturn in the economy generally, cause consumer spending or shopping center traffic to decline or reduce the desire of our
customers to make discretionary purchases. Any of the foregoing factors could negatively impact our sales revenue, particularly in the
case of any terrorist attack targeting retail space, such as a shopping center. Furthermore, an act of terrorism or war, or the threat
thereof, could negatively impact our business by interfering with our ability to obtain merchandise from foreign manufacturers. Any
future inability to obtain merchandise from our foreign manufacturers or to substitute other manufacturers, at similar costs and in a
timely manner, could adversely affect our business.
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, including price changes resulting from foreign exchange rate exchanges, 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 changes in foreign
currency exchange rates that have reduced the purchasing power of the U.S. dollar and, to a lesser extent, to increases in selling,
general and administrative expenses, particularly with regard to employee benefits, and 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 total 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.
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