Target 2013 Annual Report Download - page 14

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damage or interruption from power outages, telecommunications failures, computer viruses and malicious attacks,
security breaches and catastrophic events. If our systems are damaged or fail to function properly, we may incur
substantial repair or replacement costs, experience data loss and impediments to our ability to manage inventories or
process guest transactions, and encounter lost guest confidence, which could adversely affect our results of operations.
The Data Breach we experienced negatively impacted our ability to timely handle customer inquiries, and we
experienced weaker than expected U.S. Segment sales following the announcement of the Data Breach.
We continually make significant technology investments that will help maintain and update our existing computer
systems. Implementing significant system changes increases the risk of computer system disruption. Additionally, the
potential problems and interruptions associated with implementing technology initiatives could disrupt or reduce our
operational efficiency, and could impact the guest experience and guest confidence.
If we do not positively differentiate the Target experience and appeal to our new Canadian guests, our financial
results could be adversely affected.
In fiscal 2013 we opened 124 Target stores in Canada, which was our first retail store expansion outside of the United
States. Our initial sales and operating results in Canada have not met our initial expectations. Improving our sales in
Canada is contingent on our ability to deploy new marketing programs that positively differentiate us from other retailers
in Canada, and achieve market acceptance by Canadian guests. In addition, our sales and operating results in Canada
are dependent on our ability to manage our inventory to offer the expected assortment of merchandise to our Canadian
guests while avoiding overstock situations, and general macroeconomic conditions in Canada. If we do not effectively
execute our marketing program and manage our inventory in Canada, our financial results could be adversely affected.
A disruption in relationships with third parties who provide us services in connection with certain aspects of
our business could adversely affect our operations.
We rely on third parties to support a variety of business functions, including our Canadian supply chain, portions of
our technology development and systems, our multichannel platforms and distribution network operations, credit and
debit card transaction processing, and extensions of credit for our 5% REDcard Rewards loyalty program. If we are
unable to contract with third parties having the specialized skills needed to support those strategies or integrate their
products and services with our business, or if those third parties fail to meet our performance standards and
expectations, including with respect to data security, our reputation, sales and results of operations could be adversely
affected. In addition, we could face increased costs associated with finding replacement providers or hiring new team
members to provide these services in-house.
We experienced a significant data security breach in the fourth quarter of fiscal 2013 and are not yet able to
determine the full extent of its impact and the impact of government investigations and private litigation on
our results of operations, which could be material.
The Data Breach we experienced involved the theft of certain payment card and guest information through unauthorized
access to our network. Our investigation of the matter is ongoing, and it is possible that we will identify additional
information that was accessed or stolen, which could materially worsen the losses and reputational damage we have
experienced. For example, when the intrusion was initially identified, we thought the information stolen was limited to
payment card information, but later discovered that other guest information was also stolen.
We are currently subject to a number of governmental investigations and private litigation and other claims relating to
the Data Breach, and in the future we may be subject to additional investigations and claims of this sort. These
investigations and claims could have a material adverse impact on our results of operations or profitability. Our financial
liability arising from such investigations and claims will depend on many factors, one of which is whether, at the time
of the Data Breach, the portion of our network that handles payment card data was in compliance with applicable
payment card industry standards. While that portion of our network was determined to be compliant by an independent
third-party assessor in the fall of 2013, we expect the forensic investigator working on behalf of the payment card
networks to claim that we were not in compliance. Another factor is whether, and if so to what extent, any fraud losses
or other expenses experienced by cardholders, card issuers and/or the payment card networks on or with respect to
the payment card accounts affected by the Data Breach can be properly attributed to the Data Breach and whether,
and if so to what extent, it would in any event be our legal responsibility. In addition, the governmental agencies
investigating the Data Breach may seek to impose on us fines and/or other monetary relief and/or injunctive relief that
could materially increase our data security costs, adversely impact how we operate our network and collect and use
guest information, and put us at a competitive disadvantage with other retailers.