Saks Fifth Avenue 2008 Annual Report Download - page 13

purchases goods. Accordingly, changes in the value of the dollar relative to foreign currencies may increase the
Company’s cost of goods sold. If the Company is unable to pass such cost increases on to its customers or the
higher cost of the products results in decreased consumption, gross margins, and ultimately earnings, would
decrease.
A privacy breach could adversely affect the Company’s business.
The protection of customer, employee, and company data is critical to the Company. In particular, the
Company utilizes customer data captured through the use of proprietary credit cards to develop advertising and
promotional events. The regulatory environment surrounding information security and privacy is increasingly
demanding, with the frequent imposition of new and constantly changing requirements across business units. In
addition, customers have a high expectation that the Company will adequately protect their personal information.
A significant breach of customer, employee, or company data could damage the Company’s reputation and result
in lost sales, fines, or litigation.
Ownership and leasing of significant amounts of real estate exposes the Company to possible liabilities and
losses.
The majority of the SFA stores are owned while all of the OFF 5th stores are leased. Accordingly, the
Company is subject to all of the risks associated with owning and leasing real estate. In particular, the value of
the assets could decrease, and their costs to operate could increase, because of changes in the investment climate
for real estate, demographic trends and supply or demand for the use of the store, which may result from
competition from similar stores in the area, as well as liability for environmental conditions. Store leases
generally require the Company to pay a fixed minimum rent and a variable amount based on a percentage of
annual sales at that location. The Company generally cannot terminate these leases. If a store is not profitable,
and the Company decides to close it, the Company may be committed to perform certain obligations under the
applicable lease including, among other things, paying rent for the balance of the applicable lease term. In
addition, as each of the leases expires, the Company may be unable to negotiate renewals, either on commercially
acceptable terms or at all, which could cause the Company to close stores in desirable locations. If an existing
owned store is not profitable, and the Company decides to close it, the Company may be required to record an
impairment charge and/or exit costs associated with the disposal of the store. In addition, the Company may not
be able to close an unprofitable owned or leased store due to an existing operating covenant which may cause the
Company to operate the location at a loss and prevent the Company from finding a more desirable location.
Item 1B. Unresolved Staff Comments.
None.
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