Saks Fifth Avenue 2010 Annual Report Download - page 6

In September of 2006, the Company entered into agreements with HSBC and MasterCard International
Incorporated to issue co-branded MasterCard cards to new and existing proprietary credit card customers. Under
this program, qualifying customers are issued an SFA and MasterCard co-branded credit card that functions as a
traditional proprietary credit card when used at any SFA or OFF 5TH store and at Saks Direct or as a MasterCard
card when used at any unaffiliated location that accepts MasterCard cards. HSBC establishes and owns the
co-brand accounts, retains the benefits associated with the ownership of the accounts, receives the finance charge
and other income from the accounts, and incurs the bad debts associated with the accounts.
Historically, proprietary credit card holders have shopped more frequently with the Company and purchased
more merchandise than customers who pay with cash or third-party credit cards. The Company also makes
frequent use of the names and addresses of the proprietary credit card holders in its direct marketing efforts.
The Company seeks to expand the number and use of the proprietary credit cards by, among other things,
providing monetary incentives to sales associates to open new credit accounts, which generally can be opened
while a customer is visiting one of the Company’s stores. Customers who open accounts are entitled to a discount
on the first day’s purchases. Customers using the proprietary credit card are eligible for the SaksFirst loyalty
program that rewards customers for spending on their proprietary charge cards. Additionally, co-brand card
customers earn SaksFirst points for purchases made at unaffiliated locations. Increased spending on the
proprietary cards is intended to result in an increased rate of reward. Rewards come in the form of electronic gift
cards that are redeemable on future purchases. In addition, members of the loyalty program are eligible for other
rewards and benefits including special shopping events and travel discounts.
As of January 29, 2011, there were approximately 633,000 proprietary credit accounts that were active
within the prior twelve months, accounting for 37.6% of the Company’s 2010 sales.
Trademarks and Service Marks
The Company owns many trademarks and service marks including, but not limited to, “Saks Fifth Avenue,”
“Saks & Company,” “SFA,” “S5A,” “The 5TH Avenue Club,” “SAKSFIRST,” “Saks Fifth Avenue Men’s
Collection,” and “OFF 5TH.” Management believes its trademarks and service marks are important and that the
loss of certain of its trademarks or trade names, particularly the store nameplates, could have a material adverse
effect on the Company. Many of the Company’s trademarks and service marks are registered in the United States
Patent and Trademark Office. The terms of these registrations are generally ten years, and they are renewable for
additional ten-year periods indefinitely so long as the marks are in use at the time of renewal. The Company is
not aware of any claims of infringement or other challenges to its right to use its marks that would have a
material adverse effect on the Company’s consolidated financial position, results of operations, or liquidity.
Reliance on Fifth Avenue Store
The Company’s flagship SFA store located on Fifth Avenue in New York City accounted for approximately
22% of total Company sales in 2010 and plays a significant role in creating awareness for the Saks Fifth Avenue
brand name.
Customer Service
The Company believes that good customer service contributes to increased store visits and purchases by its
customers.
The Company’s goal is to deliver an inviting, customer-focused shopping experience to each customer. At
SFA and OFF 5TH, the Company seeks to enable its customers to discover both accessible and high-end fashion
in a warm, welcoming environment, guided by knowledgeable sales associates. Compensation for sales
associates is generally a commission-based program. Sales associates undergo extensive service, selling, and
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