Saks Fifth Avenue 2010 Annual Report Download - page 12

If the Company does not have the ability to successfully upgrade, maintain and secure our information
systems to support the needs of the organization, it could have an adverse impact on the Company’s
business.
The Company relies heavily on information systems to manage operations, including a full range of retail,
financial, sourcing and merchandising systems, and regularly makes investments to upgrade, enhance or replace
these systems. The reliability and capacity of information systems is critical. Despite the Company’s preventative
efforts, its systems are vulnerable from time to time to damage or interruption from, among other things, security
breaches, computer viruses, power outages and other technical malfunctions. Any disruptions affecting the
Company’s information systems, or any delays or difficulties in transitioning to new systems or in integrating
them with current systems, could have a material adverse impact on the Company’s business. In addition, the
Company’s ability to continue to operate its business without significant interruption in the event of a disaster or
other disruption depends in part on the ability of the Company’s information systems to operate in accordance
with its disaster recovery and business continuity plans.
A privacy breach could adversely affect the Company’s business.
The protection of customer, employee, and company data is critical to the Company. The regulatory
environment and industry standards surrounding information security and privacy continue to evolve in response
to increased threats to information security. 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 resulting in a decrease in the
Company’s earnings.
Ownership and leasing of significant amounts of real estate exposes the Company to possible liabilities and
losses.
A significant percentage of the Company’s SFA stores and one OFF 5TH store are owned. The remainder of
the Company’s SFA and 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 costs to
operate stores 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 which could result in an
impairment charge.
Item 1B. Unresolved Staff Comments.
None.
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