Target 2011 Annual Report Download - page 60

In October 2010, guests began to receive a 5 percent discount on virtually all purchases at checkout every day
when they use a REDcard at any Target store or on Target.com. The discounts associated with loyalty programs are
included as reductions in sales in our Consolidated Statements of Operations and were $340 million in 2011,
$162 million in 2010 and $94 million in 2009.
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
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.
5. Advertising Costs
Advertising costs are expensed at first showing or distribution of the advertisement and were $1,360 million in
2011, $1,292 million in 2010 and $1,167 million in 2009. Vendor income that offset advertising expenses was
$256 million, $216 million and $179 million in 2011, 2010 and 2009, respectively. Newspaper circulars, internet
advertisements and media broadcast made up the majority of our advertising costs in all three years.
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