Neiman Marcus 2010 Annual Report Download - page 8

Table of Contents
Through our print media programs, we mail various publications to our customers communicating upcoming in-store events,
new merchandise offerings and fashion trends. In connection with these programs, Neiman Marcus produces The Book®
approximately eight to nine times each year. The Book is a high-quality publication featuring the latest fashion trends that is mailed
on a targeted basis to our customers and has a yearly printing of approximately two million. Our other print publications include the
Bergdorf Goodman Magazine and specific designer mailers.
In addition to print publications, we leverage our websites and online advertising through banner ads and paid searches,
among other things, to communicate and connect with customers looking for fashion information and products online. We believe
that the online and print catalog operations offer the customer an omni-channel shopping experience allowing our customers to choose
the channel that best fits their needs at any given time.
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, as well as the ability to accumulate points for qualifying purchases. Increased points are
periodically offered in connection with promotional and other events. Upon attaining specified point levels, points are automatically
redeemed for gift cards. Approximately 35% of our total revenues during each of the last two calendar years was generated by our
InCircle loyalty program members.
Proprietary Credit Card Program. We have a marketing and servicing alliance with HSBC Bank Nevada, N.A. and HSBC
Private Label Corporation (collectively referred to as HSBC). Pursuant to the agreement with HSBC, HSBC offers proprietary credit
card accounts to our customers under both the "Neiman Marcus" and "Bergdorf Goodman" brand names. Our original program
agreement with HSBC expired in July 2010. Effective July 2010, we amended and extended our agreement with HSBC to July 2015
(renewable thereafter for three-year terms). We refer to the agreement with HSBC, including the extension, as the Program
Agreement.
Under the terms of the Program Agreement, 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 revisions, both increases and decreases, based upon the
overall profitability and performance of the proprietary credit card portfolio. In addition, we receive payments from HSBC for
marketing and servicing activities as we continue to handle key customer service functions, primarily customer inquiries and
collections, for HSBC.
Based upon current market conditions and the changes in the terms of the extended Program Agreement, we believe the
future income earned by the Company will be lower than the income earned pursuant to the original Program Agreement and that a
higher portion of such future income will be based upon the future profitability and performance of the credit card portfolio. During
fiscal year 2011, we experienced a 22% decline in income earned pursuant to the Program Agreement with HSBC as compared to
income earned in fiscal year 2010.
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.
In connection with our Program Agreement, we have changed and may continue to change the terms of credit offered to our
customers. In addition, HSBC has discretion over certain policies and arrangements with credit card customers and may change these
policies and arrangements in ways that affect our relationships with these customers. Any such changes in our credit card
arrangements may adversely affect our credit card program and ultimately, our business.
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 2011 and 2010, approximately 50% 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.
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