Neiman Marcus 2008 Annual Report Download - page 19

Table of Contents
Failure to maintain competitive terms under our loyalty programs could adversely affect our business.
We maintain loyalty programs that are designed to cultivate long-term relationships with our customers and enhance the
quality of service we provide to our customers. We must constantly monitor and update the terms of our loyalty programs so that they
continue to meet the demands and needs of our customers and remain competitive with loyalty programs offered by other high-end
specialty retailers. Given that approximately 40% of our total revenues during each of the last two calendar years was generated by our
InCircle loyalty program members, our failure to continue to provide quality service and competitive rewards to our customers
through the InCircle loyalty program could adversely affect our business.
Changes in our credit card arrangements, applicable regulations and consumer credit patterns could adversely impact our
ability to facilitate the provision of consumer credit to our customers and adversely affect our business.
We maintain a proprietary credit card program through which credit is extended to customers under the "Neiman Marcus"
and "Bergdorf Goodman" names. Because a majority of our revenues are transacted through our proprietary credit cards, changes in
our proprietary credit card arrangement that adversely impact our ability to facilitate the provision of consumer credit may adversely
affect our performance.
We entered into a five-year program agreement with HSBC in June 2005 which provides for a long-term marketing and
servicing alliance under which HSBC offers proprietary credit card accounts to our customers under both the "Neiman Marcus" and
"Bergdorf Goodman" brand names. Under the terms of this alliance, HSBC offers credit cards and non-card payment plans and bears
substantially all credit risk with respect to sales transacted on the cards bearing our brands. HSBC has discretion over certain policies
and arrangements with our credit card customers and may change these policies and arrangements in ways that affect our relationship
with these customers.
We receive ongoing payments from HSBC related to credit card sales and compensation for marketing and servicing
activities. During fiscal year 2006, we outsourced various administrative elements of the proprietary credit card program to HSBC,
including the processing of data, although we continue to handle key customer service functions, including customer inquiries and
collections.
We have entered into various amendments to the Program Agreement with HSBC since its inception. These amendments,
among other things, provide for 1) the allocation between HSBC and NMG of additional income, if any, to be generated from the
credit card program as a result of certain changes made to the terms of credit extended to our customers and 2) the allocation of certain
credit card losses between HSBC and NMG. We may enter into additional amendments to the Program Agreement prior to its
maturity to alter the allocation of both credit card losses and income, as agreed to by the parties in response to current economic
conditions and other factors.
Credit card operations are subject to numerous federal and state laws that impose disclosure and other requirements upon the
origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be
charged by a credit provider. Any regulation or change in the regulation of credit arrangements that would materially limit the
availability of credit to our customer base could adversely affect our business. Changes in credit card use, payment patterns, and
default rates may result from a variety of economic, legal, social, and other factors that we cannot control or predict with certainty. In
addition, there can be no assurance that, upon expiration of our current alliance with HSBC, that we will be able to enter into a
replacement arrangement on terms comparable to the current arrangement. Any changes in our credit card arrangements may
adversely affect our credit card program and ultimately, our business.
Our business can be affected by extreme or unseasonable weather conditions.
Extreme weather conditions in the areas in which our stores are located could adversely affect our business. For example,
heavy snowfall, rainfall or other extreme weather conditions over a prolonged period might make it difficult for our customers to
travel to our stores and thereby reduce our sales and profitability. Our business is also susceptible to unseasonable weather conditions.
For example, extended periods of unseasonably warm temperatures during the winter season or cool weather during the summer
season could render a portion of our inventory incompatible with those unseasonable conditions. Reduced sales from extreme or
prolonged unseasonable weather conditions would adversely affect our business.
We are subject to numerous regulations that could affect our operations.
We are subject to customs, truth-in-advertising and other laws, including consumer protection regulations and zoning and
occupancy ordinances that regulate retailers generally and/or govern the importation, promotion and sale of merchandise and the
operation of retail stores and warehouse facilities. Although we undertake to monitor changes in these laws, if these laws
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