Neiman Marcus 2014 Annual Report Download - page 10

Table of Contents
Home Furnishings and Decor. Home furnishings and decor include linens, tabletop, kitchen accessories, furniture, rugs, decorative items (frames,
candlesticks, vases and sculptures) and collectibles. Merchandise for the home complements our apparel offering in terms of quality and design. Our primary
designers in this category include Jay Strongwater, MacKenzie-Childs and Baccarat.
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Our merchandise assortment consists of a broad selection of narrowly distributed, highly differentiated and distinctive luxury merchandise
purchased from both well-known luxury designers and new and emerging fashion designers. We communicate with our designers frequently, providing
feedback on current demand for their products, suggesting changes to specific product categories or items 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. Our relationships and purchasing power with designers allow us to obtain a broad selection of quality merchandise. Our
women’s and men’s apparel and fashion accessories merchandise categories are especially dependent upon our relationships with designers. We monitor and
evaluate the sales and profitability performance of each designer 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. In addition, our designer base is diverse, with only one
designer representing more than 5% of the cost of our total purchases in fiscal year 2015. This designer represented 7.3% of our total purchases in fiscal year
2015. 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 designers in support of the merchandise we purchase for resale.
We also receive advertising allowances from certain of our designers, substantially all of which represent reimbursements of direct, specified and incremental
costs we incur to promote the designers' merchandise. In addition, we receive allowances from certain merchandise designers in conjunction with
compensation allowances for employees who sell the designers' merchandise. For more information related to allowances received from designers, see Note 1
of the Notes to Consolidated Financial Statements in Item 15.
To expand our product assortment, we offer certain merchandise, primarily precious jewelry, that has been consigned to us from the designer. As of
August 1, 2015 and August 2, 2014, we held consigned inventories with a cost basis of approximately $399.0 million and $376.8 million, respectively.
Consigned inventories are not reflected in our Consolidated Balance Sheets as we do not take title to consigned merchandise.
Between 2005 and 2014, we created and maintained e-commerce websites pursuant to contractual arrangements with certain designers. Pursuant to
these arrangements, we purchased and maintained inventory from such designers that was showcased on their respective websites and bore all responsibilities
related to the fulfillment of goods purchased on such websites. All of these contractual arrangements expired by the end of the first quarter of fiscal year 2015
and were not renewed. Revenues generated from the operation of the designer websites were $4.7 million in fiscal year 2015, $70.0 million for the thirty-nine
weeks ended August 2, 2014, $13.5 million for the thirteen weeks ended November 2, 2013 and $66.5 million in fiscal year 2013.
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We manage our inventory on an omni‑channel basis, and our processes and facilities are designed to optimize merchandise productivity. We are in
the process of implementing a new Oracle-based merchandising system, which we call NMG One, that will enhance our ability to purchase, share, manage and
sell our inventory.
The majority of the merchandise we purchase is initially received at one of our centralized distribution facilities. We utilize distribution facilities in
Longview, Texas, the Dallas-Fort Worth area, Pittston, Pennsylvania and Munich, Germany, and three regional service centers in the United States. Our
distribution facilities are linked electronically to our various merchandising teams to facilitate the distribution of goods to our stores.
We utilize electronic data interchange technology with certain of our designers, which is designed to move merchandise onto the selling floor
quickly and cost-effectively by allowing designers 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 designer's bar
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