Neiman Marcus 2010 Annual Report Download - page 18

Table of Contents
systems supporting our online operations, sales operations or distribution facilities could prevent us from processing and delivering
merchandise, which could adversely affect our business.
A breach in information privacy could negatively impact our operations.
The protection of our customer, employee and company data is critically important to us. We utilize customer data captured
through both our proprietary credit card programs and our direct marketing activities. Our customers have a high expectation that we
will adequately safeguard and protect their personal information. A significant breach of customer, employee or company data could
damage our reputation and relationships with our customers and result in lost sales, fines and lawsuits.
We depend on the success of our advertising and marketing programs.
Our advertising and marketing costs, net of allowances, amounted to $86.6 million for fiscal year 2011. Our business depends
on attracting an adequate volume of customers who are likely to purchase our merchandise. We have a significant number of
marketing initiatives and regularly fine-tune our approach and adopt new ones. There can be no assurance as to our continued ability
to effectively execute our advertising and marketing programs, and any failure to do so could adversely affect our business and results
of operations.
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. Approximately 35% of our total revenues during each of the last two calendar years was generated by our InCircle
loyalty program members. If our InCircle loyalty program were to fail to provide competitive rewards and quality service to our
customers, our business could be adversely affected.
The loss of senior management or attrition among our buyers or key sales associates could adversely affect our business.
Our success in the specialty retail industry is dependent on our senior management team, buyers and key sales associates.
We rely on the experience of our senior management and their specific knowledge relating to us and our industry 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 could 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.
Changes in our credit card arrangements and regulations with respect to those arrangements could adversely impact our
business.
We maintain a proprietary credit card program through which credit is extended to customers. We have a marketing and
servicing alliance with certain HSBC entities ("HSBC"). Under the terms of the agreement with HSBC, 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 payments from HSBC based on sales transacted on our proprietary credit cards. Such payments are subject to annual
adjustments based upon the overall annual profitability and performance of the proprietary credit card portfolio. In addition, we
receive payments from HSBC for certain marketing and servicing activities related to the credit cards. In connection with the
agreement with HSBC, we have changed and may continue to change the terms of credit offered to our customers as well as HSBC
may change certain policies and arrangements with credit card customers in ways that affect our relationships with these customers.
Moreover, 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.
In August 2011, Capital One Financial Corporation (Capital One) entered into a purchase and assumption agreement with
HSBC to purchase HSBC's credit card and private label credit card business in the U.S. Our agreement with HSBC includes a change
of control provision that would permit us to terminate or renegotiate our agreement with any assignee of HSBC's interest. At this time,
we are unable to evaluate the impact of such a transaction, if any, on the Company. However, because a significant portion of our
revenues is transacted through our proprietary credit cards, changes in our proprietary credit card arrangement and consumer credit
patterns and use may adversely affect our performance.
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