Neiman Marcus 2010 Annual Report Download - page 10

Table of Contents
Vendor Relationships
Our merchandise assortment consists of a wide selection of luxury goods purchased from both well-known luxury-branded
fashion vendors as well as new and emerging designers. We communicate with our vendors frequently, providing feedback on current
demand for their products, suggesting changes to specific product categories or items on occasion and gaining insight into their future
fashion direction. Certain designers sell their merchandise, or certain of their design collections, exclusively to us and other designers
sell to us pursuant to their limited distribution policies. We compete for quality merchandise and assortment principally based on
relationships and purchasing power with designer resources. Our women's and men's apparel and fashion accessories businesses are
especially dependent upon our relationships with these designer resources. We monitor and evaluate the sales and profitability
performance of each vendor and adjust our future purchasing decisions from time to time based upon the results of this analysis. We
have no guaranteed supply arrangements with our principal merchandising sources and, accordingly, there can be no assurance that
such sources will continue to meet our needs for quality, style and volume. In addition, our vendor base is diverse, with only one
vendor representing slightly more than 5% of the cost of our total purchases in fiscal year 2011. The breadth of our sourcing helps
mitigate risks associated with a single brand or designer.
Consistent with industry business practice, we receive allowances from certain of our vendors in support of the merchandise
we purchase for resale. We receive certain allowances to reimburse us for markdowns taken or to support the gross margins that we
earn in connection with the sales of the vendor's merchandise. Other allowances we receive represent reductions to the amounts we
pay to acquire the merchandise. We also receive advertising allowances from certain of our merchandise vendors, substantially all of
which represent reimbursements of direct, specified and incremental costs we incur to promote the vendors' merchandise. These
allowances are recorded as a reduction of our advertising costs when incurred. In addition, we receive allowances from certain
merchandise vendors in conjunction with compensation allowances for employees who sell the vendors' merchandise, which
allowances are netted against the related compensation expenses that we incur. For more information related to allowances received
from vendors, see Note 1 of the Notes to Consolidated Financial Statements in Item 15.
In order to expand our product assortment, we offer certain merchandise, primarily precious jewelry, which has been
consigned to us from the vendor. As of July 30, 2011 and July 31, 2010, we held consigned inventories with a cost basis of
approximately $287.7 million and $256.2 million, respectively (consigned inventories are not reflected in our consolidated balance
sheet as we do not take title to consigned merchandise).
Inventory Management
Our merchandising functions are responsible for the determination of the merchandise assortment and quantities to be
purchased for each of our channels and, in the case of Neiman Marcus and Last Call stores, for the allocation of merchandise to each
store. We currently have approximately 400 merchandise buyers and merchandise planners.
The majority of the merchandise we purchase is initially received at one of our centralized distribution facilities. To support
our Specialty Retail Stores, we utilize a primary distribution facility in Longview, Texas, a regional distribution facility in Dayton,
New Jersey and four regional service centers. We also operate two distribution facilities in the Dallas-Fort Worth area to support our
Direct Marketing operation.
Our distribution facilities are linked electronically to our various merchandising staffs to facilitate the distribution of goods to
our stores. We utilize electronic data interchange (EDI) technology with certain of our vendors, which is designed to move
merchandise onto the selling floor quickly and cost-effectively by allowing vendors to deliver floor-ready merchandise to the
distribution facilities. In addition, we utilize high-speed automated conveyor systems capable of scanning the bar coded labels on
incoming cartons of merchandise and directing the cartons to the proper processing areas. Many types of merchandise are processed
in the receiving area and immediately "cross docked" to the shipping dock for delivery to the stores. Certain processing areas are
staffed with personnel equipped with hand-held radio frequency terminals that can scan a vendor's bar code and transmit the necessary
information to a computer to record merchandise on hand. We utilize third-party carriers to distribute our merchandise to individual
stores.
With respect to the Specialty Retail Stores, the majority of the merchandise is held in our retail stores. We primarily operate
on a pre-distribution model through which we allocate merchandise on our initial purchase orders to each store. This merchandise is
shipped from our vendors to our distribution facilities for delivery to designated stores. We closely monitor the inventory levels and
assortments in our retail stores to facilitate reorder and replenishment decisions, satisfy customer demand
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