Saks Fifth Avenue 2011 Annual Report Download - page 7

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November 11, 2011, the Company entered into a sixth amendment of its credit card program agreement which
provided for an extension of the term of the agreement to April 15, 2018, subject to certain early termination
rights set forth in the agreement.
Pursuant to a servicing agreement with HSBC also expiring in April 2018, the Company continues to provide key
customer service functions, including new account openings, transaction authorizations, billing adjustments and
customer inquiries, and receives compensation from HSBC for the provision of these services.
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 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 targeted 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 28, 2012, there were approximately 621,000 proprietary credit accounts that were active within
the prior twelve months, accounting for 36.3% of the Company’s 2011 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 2011 and plays a significant role in creating awareness for the Saks Fifth Avenue brand.
Customer Service
The Company believes that good customer service contributes to increased loyalty and incremental purchases
by its customers. The Company’s goal is to deliver a memorable, customer-focused shopping experience to each
customer, whether shopping in store or online.
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