Neiman Marcus 2012 Annual Report Download - page 17

Table of Contents
Further, we have experienced certain inflationary conditions in our cost base due to increases in selling, general and administrative expenses,
particularly with regard to employee benefits, and increases in fuel prices and costs impacted by increases in fuel prices, such as freight and transportation
costs. Inflation can harm our margins and profitability if we are unable to increase prices or cut costs to offset the effects of inflation in our cost base.
If our customers reduce their levels of spending in response to increases in retail prices and/or we are unable to pass cost increases to our customers,
our revenues and profit margins may decrease. Accordingly, foreign currency fluctuations and inflation could have an adverse effect on our business and
results of operations in the future.
We depend on the success of our advertising and marketing programs.
Our marketing and advertising costs, net of allowances, amounted to $126.9 million for fiscal year 2013. Our business depends on attracting an
adequate volume of customers who are likely to purchase our merchandise. We have a significant number of marketing initiatives and regularly fine-tune our
approach and adopt new ones. We cannot assure you as to our continued ability to execute effectively our advertising and marketing programs and any failure
to do so could adversely affect our business and results of operations.
Our InCircle loyalty program is 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 this loyalty program so that it continues to meet the demands and needs of our customers and
remain competitive with loyalty programs offered by other luxury and premium multi-branded retailers. Approximately 40% of our total revenues in fiscal year
2013 were generated by our InCircle loyalty program members. If our InCircle loyalty program were to fail to provide competitive rewards and quality service
to our customers, our business and results of operations could be adversely affected.
A material disruption in our information systems could adversely affect our business or results of operations.
We rely on our information systems to process transactions, summarize our operating results and manage our business. Our information systems are
subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cyber-attack or other security breaches
and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and acts of war or terrorism.
To keep pace with changing technology, we must continuously implement new information technology systems as well as enhance our existing
systems. The successful execution of some of our growth strategies is dependent on the design and implementation of new systems and technologies and/or the
enhancement of existing systems, in particular the expansion of our omni-channel and online capabilities.
The reliability and capacity of our information systems is critical to our operations and the implementation of our growth initiatives. Any disruptions
affecting our information systems, or delays or difficulties in implementing or integrating new systems, could have an adverse effect on our business, in
particular our Online operation, and results of operations.
A breach in information privacy could negatively impact our operations.
The protection of our customer, employee and company data is critically important to us. We utilize customer data captured through both our
proprietary credit card programs and our online activities. Our customers have a high expectation that we will adequately safeguard and protect their personal
information. A significant breach of customer, employee or company data could damage our reputation and relationships with our customers and result in lost
revenues, fines and lawsuits.
We outsource certain business processes to third party vendors, which subjects us to risks, including disruptions in business and increased costs.
We outsource some technology-related business processes to third parties. These include credit card authorization and processing, insurance claims
processing, payroll processing, record keeping for retirement and benefit plans and certain information technology functions. In addition, we review
outsourcing alternatives on a regular basis and may decide to outsource additional business processes in the future. Further, we depend on third party vendors
for delivery of our products from manufacturers and to our customers. We try to ensure that all providers of outsourced services are observing proper internal
control practices, such as redundant processing facilities; however, there are no guarantees that failures will not occur. Failure of third parties to provide
adequate services could have an adverse effect on our results of operations or ability to accomplish our financial and management reporting.
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