Saks Fifth Avenue 2008 Annual Report Download - page 9

A decline in the demand for luxury goods due to deteriorating macroeconomic conditions has had and
could continue to have an adverse impact on the Company’s results of operations.
As a result of the sale of the SDSG businesses, the Company is focused on the luxury retail sector. SFA
stores, OFF 5th stores and www.saks.com offer a wide assortment of luxury fashion apparel, shoes, accessories,
jewelry, cosmetics and gift items. All of the goods that the Company sells are discretionary items. Changes in
consumer confidence and fluctuations in financial markets can influence cyclical trends, particularly in the
luxury sector. Consequently, the current severe downturn in the economy has resulted and may continue to result
in fewer customers shopping in the Company’s stores or online. In response, and in order to reduce inventory
levels, we have been and may continue to be forced to take additional markdowns and to increase promotional
events, which has had and may continue to have an adverse impact on the Company’s results of operations. As a
result of a decrease in consumer spending, the Company has been forced to reduce costs. Despite these measures
and plans to further reduce costs and align inventory levels with sales in fiscal year 2009, there is no assurance
that the Company will be successful in restoring profitability.
Poor economic conditions have affected and may continue to affect consumer spending which has harmed
and may continue to significantly harm the Company’s business.
The retail industry is continuously subject to domestic and international economic trends. The success of the
Company’s business depends to a significant extent upon the level of consumer spending. A number of factors
affect the level of consumer spending on merchandise that the Company offers, including, among other things:
• General economic, industry and weather conditions;
• The performance of the financial equity and credit markets;
• Current and expected unemployment levels;
• Crude oil prices, that affect gasoline and heating oil prices;
• The level of consumer debt;
• Interest rates;
• Tax rates and policies;
• War, terrorism and other hostilities; and
• Consumer confidence in future economic conditions.
Reduced consumer confidence and spending has resulted in reduced demand for discretionary items and has
forced the Company to take significant markdowns. If the decrease in consumer demand for the Company’s
merchandise continues, the Company may be forced to take additional markdowns in future periods.
Additionally, several of the Company’s stores are in tourist markets, including the flagship SFA New York
store. A continuation of the downturn in economic conditions or other events such as terrorist activity could
further impact travel and thus negatively affect the results of operations for stores located within these tourist
markets. Increases in transportation and fuel costs, the financial condition of the airline industry and its impact on
air travel and sustained recessionary periods in the U.S. and internationally could also unfavorably impact results
of the stores located within these tourist markets.
The Company’s business and results of operations are also subject to uncertainties arising out of world
events. These uncertainties may include a global economic slowdown, changes in consumer spending or travel,
an increase in gasoline and commodity prices, epidemics and the economic consequences of natural disasters,
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