Target 2012 Annual Report Download - page 55

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Since October 2010, guests receive a 5-percent discount on virtually all purchases at checkout every day when they
use a REDcard. In November 2011, guests also began to receive free shipping at Target.com when they use their
REDcard. The discounts associated with loyalty programs are included as reductions in sales in our Consolidated
Statements of Operations and were $583 million, $340 million and $162 million in 2012, 2011 and 2010,
respectively.
3. Cost of Sales and Selling, General and Administrative Expenses
The following table illustrates the primary costs classified in each major expense category:
Cost of Sales Selling, General and Administrative Expenses
Total cost of products sold including Compensation and benefit costs including
• Freight expenses associated with moving • Stores
merchandise from our vendors to our distribution • Headquarters
centers and our retail stores, and among our Occupancy and operating costs of retail and
distribution and retail facilities headquarters facilities
• Vendor income that is not reimbursement of Advertising, offset by vendor income that is a
specific, incremental and identifiable costs reimbursement of specific, incremental and
Inventory shrink identifiable costs
Markdowns Pre-opening costs of stores and other facilities
Outbound shipping and handling expenses Other administrative costs
associated with sales to our guests
Payment term cash discounts
Distribution center costs, including compensation
and benefits costs
Import cost
Note: The classification of these expenses varies across the retail industry.
4. Consideration Received from Vendors
We receive consideration for a variety of vendor-sponsored programs, such as volume rebates, markdown
allowances, promotions and advertising allowances and for our compliance programs, referred to as ‘‘vendor
income.’’ Vendor income reduces either our inventory costs or SG&A expenses based on the provisions of the
arrangement. Promotional and advertising allowances are intended to offset our costs of promoting and selling
merchandise in our stores. Under our compliance programs, vendors are charged for merchandise shipments that
do not meet our requirements (violations), such as late or incomplete shipments. These allowances are recorded
when violations occur. Substantially all consideration received is recorded as a reduction of cost of sales.
We establish a receivable for vendor income that is earned but not yet received. Based on provisions of the
agreements in place, this receivable is computed by estimating the amount earned when we have completed our
performance. We perform detailed analyses to determine the appropriate level of the receivable in the aggregate.
The majority of year-end receivables associated with these activities are collected within the following fiscal quarter.
We have not historically had significant write-offs for these receivables.
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PART II