Target Corp. · Risk factors

Prior heading: If we are unable to positively differentiate ourselves from other retailers, our results of operations could be adversely affected.

We have been able attempt to compete successfully by differentiating differentiate our guests’ shopping guest experience through a careful combination of price, merchandise assortment, store environment, convenience, guest service, loyalty programs, and marketing efforts. Guest marketing. Our ability to successfully differentiate ourselves depends on many competitive factors, including guest perceptions regarding the cleanliness and safety and cleanliness of our stores, the environmental impact of our business, the functionality, reliability, value and speed exclusivity of our digital channels and fulfillment options, offerings, our in-stock levels, the value and exclusivity effectiveness of our offerings, digital channels and fulfillment options, our efforts ability to source merchandise responsibly source merchandise, and ethically are among the factors that affect our ability to compete. In addition, our ability to create a personalized guest experience through the collection and use of accurate and relevant guest data is important to our ability experience. If we fail to differentiate from other retailers. No single competitive factor is dominant, and actions by our competitors on any of these factors could adversely affect our sales, gross margins, and expenses. Our owned and exclusive brand products help differentiate us guest experience from other retailers, generally carry higher margins than equivalent national brand products, and represent approximately one-third of our overall sales. If we are unable to successfully develop, support, and evolve competitors, our owned and exclusive brands, if one or more of these brands experiences a loss results of consumer acceptance or confidence, or if we are unable to successfully protect our intellectual property rights, our sales operations and gross margins financial condition could be adversely affected. The retail industry's continuing migration to digital channels and multiple fulfillment options for consumers has affected the ways we differentiate from other retailers. In particular, Since consumers can quickly and conveniently comparison shop and determine real-time product availability using digital tools, which can lead to they may make decisions based solely on price or convenience, which could limit our ability to differentiate from our competitors. In addition, providing multiple fulfillment options and implementing new technology is complex, costly, and may not meet our guests’ expectations. If we are unable to offset the functionality increased costs of the digital tools. new technology and expanded fulfillment options with improved performance or efficiencies, our results of operations could be adversely affected. To remain competitive, we must anticipate and adapt to developments and offerings by other retailers. Consumers may also use third-party channels or devices, such as voice assistants and smart home devices, devices to initiate shopping searches and place orders, which could sometimes make us dependent on the capabilities and search algorithms of those third parties to reach those consumers. Any difficulties in executing our differentiation efforts or actions by our competitors in response to these efforts could adversely affect our sales, gross margins, results of operations and expenses.financial condition.

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Prior heading: If we do not anticipate and respond quickly to changing consumer preferences, our sales and profitability could suffer.

A large part of our business is dependent on our ability to make trend-right decisions and effectively manage our inventory in a broad range of merchandise categories, including apparel, accessories, home décor, electronics, toys, seasonal offerings, food and beverage, and others. categories. If we do not obtain accurate and relevant data on guest preferences, predict and quickly respond to changing consumer preferences, preferences and spending patterns, and other lifestyle decisions, emphasize the correct categories, implement competitive and effective pricing and promotion strategies, or personalize our offerings to our guests, we may experience lost lower sales, spoilage, and increased inventory markdowns, which could adversely affect our results of operations. During the COVID-19 pandemic, Our ability to predict and adapt to changing consumer preferences depends on many guests significantly reduced their spending factors, including obtaining accurate and relevant data on dining, travel, lodging, guest preferences, emphasizing relevant merchandise categories, effectively managing our inventory levels, and other leisure activities outside their homes, which may implementing competitive and effective pricing and promotion strategies. We have contributed not always been able to our increased sales, particularly for essential items predict rapid changes in consumer preferences and merchandise associated with guests spending more time at home. patterns, including those that were impacted by the COVID-19 pandemic, which has previously resulted in insufficient or excess inventory, increased costs, and adverse impacts on our results of operations. If we are unable to effectively adapt if or when guests increase spending on other categories, it could lead to lower sales future changes in consumer preferences and adversely affect spending patterns, our results of operations.operations and financial condition could be adversely affected.

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Prior heading: Our continued success is dependent on positive perceptions of Target which, if eroded, could adversely affect our business and our relationships with our guests and team members.

We believe that one of the reasons our shareholders, guests, team members, and vendors choose Target is the positive reputation we have built over many years for serving those constituencies and the communities in which we operate. To be successful in the future, we must continue to preserve Target's reputation. Our reputation is largely based in large part on perceptions, both about us and others with whom we do business, and broad access to social media makes it easy for anyone to provide public feedback that can influence perceptions of Target. perceptions. It may be difficult to control address negative publicity, publicity across media channels, regardless of whether it is accurate. Target’s responses to crises and our position or perceived lack of position on environmental, social, and governance (ESG) matters, such as sustainability, responsible sourcing, and diversity, equity, and inclusion (DE&I), and any perceived lack of transparency about those matters, could harm our reputation. While reputations may take decades to build, negative Negative incidents involving us us, our workforce, or others with whom we do business can could quickly erode trust and confidence and can result in consumer boycotts, workforce unrest or walkouts, government investigations, or and litigation. For example, we Negative reputational incidents or negative perceptions of us could adversely affect our business and results of operations, including through lower sales, the termination of business relationships, loss of new store and development opportunities, and team member retention and recruiting difficulties. In addition, stakeholder expectations regarding environmental, social, and governance matters continue to evolve and are not uniform. We have a limited ability established, and may continue to end our relationship establish, various goals and initiatives on these matters, including with CVS, which leases space respect to operate their clinics diversity, equity, and pharmacies within inclusion topics. We cannot guarantee that we will achieve these goals and initiatives. Any failure, or perceived failure, by us to achieve these goals and initiatives or to otherwise meet evolving and varied stakeholder expectations could adversely affect our stores. reputation and result in legal and regulatory proceedings against us. Any of these outcomes could negatively impact our results of operations and financial condition. Reputational harm can also occur indirectly through companies with whom we do business. We have relationships with a variety of other companies, including Apple, CVS, Disney, Levi’s, Starbucks, and Ulta Beauty. If our guests have negative experiences with or unfavorably view CVS or other unfavorably any of the companies with whom we have relationships, it could cause them to reduce or stop their business shopping with us. Negative reputational incidents could adversely affect our business and results of operations, including through lost sales, loss of new store and development opportunities, or team member retention and recruiting difficulties.us.

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Prior heading: If our capital investments in remodeling existing stores, building new stores, improving technology, and expanding our supply chain infrastructure do not achieve appropriate returns, our competitive position, financial condition, and results of operations could be adversely affected.

Our business depends, in part, on our ability to remodel existing stores and build new stores in a manner that achieves appropriate returns on our capital investment. Our store remodel program uses a custom approach based on the characteristics of each store and surrounding neighborhood, and is expected to be a continuous part of our operations to allow us to meet evolving expectations for in-store experience, fulfillment, and other changes in our business over time. When building new stores, we compete with other retailers and businesses for suitable locations for our stores. Pursuing the wrong remodel or new store opportunities and any delays, cost increases, disruptions, or other uncertainties difficulties related to those opportunities projects could adversely affect our results of operations. operations and financial condition. We are making, and expect to continue to make, significant investments in technology and replenishment and fulfillment infrastructure to improve guest experiences across multiple channels, improve the speed, accuracy, and cost-efficiency of our supply chain and inventory management systems, and support our current and expected sales levels. infrastructure. The effectiveness of these investments can be less predictable than remodeling or building new stores, and might not provide the anticipated benefits. Pursuing the wrong investment opportunities, being unable to make new concepts scalable, or misjudging benefits, which could adversely affect our results of operations and financial condition. For example, our stores-as-hubs strategy depends on adequate replenishment facilities to receive, store, and fulfillment move inventory to stores on a timely basis. Underestimating our replenishment capacity needs could result in the loss lower in-stock levels or increased costs for temporary storage. Conversely, overestimating replenishment capacity needs could result in inefficient deployment of our competitive position and capital. Any of these outcomes could adversely affect our financial condition or results of operations.operations and financial condition.

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Prior heading: A significant disruption in our computer systems and our inability to adequately maintain and update those systems could adversely affect our operations and negatively affect our guests.

We rely extensively on computer computing and information systems throughout our business. We also rely on continued and unimpeded access to the Internet to use our computer systems. An increase in remote working arrangements by our team members, vendors, and other third parties, which was accelerated by the COVID-19 pandemic, has amplified our already extensive reliance on computer systems and on our continued and unimpeded access to the Internet to use those systems, as well as the risks related to that reliance. Our systems are subject to possible damage or interruption from many events, including power outages, telecommunications failures, computer viruses, malicious attacks, security breaches, catastrophic events, and implementation errors. If our systems are damaged, disrupted, or fail to function properly damaged or reliably, disrupted, we may incur substantial repair or replacement costs, experience data loss or theft theft, and impediments to our ability be unable to manage inventories or process guest transactions, and encounter lost guest confidence, which could require additional promotional activities to attract guests and otherwise adversely affect our reputation, results of operations. We continually invest to maintain and update our computer systems. Implementing significant system changes increases the risk of computer system disruption. The potential problems and interruptions associated with implementing technology initiatives, as well as providing training and support for those initiatives, could disrupt or reduce our operational efficiency, and could negatively impact guest experiences operations, and guest confidence. financial condition. For example, in the past, we have experienced disruptions in our point-of-sale system that prevented our ability to process debit or credit transactions, which negatively impacted some guests’ experiences, experiences and generated negative publicity.publicity. We continually invest to maintain and update our systems, but implementing significant changes increases the risk of system disruption. Problems and interruptions associated with implementing technology initiatives could adversely affect our operational efficiency and negatively impact our guests and their confidence in us.

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Prior heading: If our efforts to provide information security, cybersecurity, and data privacy are unsuccessful or if we are unable to meet increasingly demanding regulatory requirements, we may face additional costly government enforcement actions and private litigation, and our reputation and results of operations could suffer.

We regularly receive and store information about our guests, team members, vendors, and other third parties. We have programs in place to detect, contain, and respond to data security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods, we may be unable to anticipate these techniques security incidents or implement adequate preventive measures. In addition, hardware, software, hardware or applications software that we develop or procure obtain from third parties may contain defects in design or manufacture or other problems that could unexpectedly compromise information security, cybersecurity, and or data privacy. Unauthorized parties may also attempt to gain access to our systems or facilities, or those of third parties with whom we do business, through fraud, trickery, deception, or other forms of deceiving our team members, contractors, and vendors. The increase in remote working arrangements by our team members, vendors, and other third parties also increases the risk of a data security compromise and the possible attack surfaces. bad acts. Although we conduct regular training as part of our information security, cybersecurity, and data privacy efforts, that training cannot may not be completely effective in preventing those attacks from being successful. successful attacks. Our only significant data security incident was a data breach that occurred in 2013 and went undetected for several weeks. The 2013 data breach adversely affected our reputation and results of operations. Both we and our vendors have experienced data security incidents since that data breach; however, to date, these other incidents have not been material to our results of operations. Based on the prominence and notoriety of our prior significant data breach, even minor additional data security incidents could draw greater scrutiny. If we, our vendors, or other third parties with whom we do business experience additional significant data security incidents or fail to detect and appropriately respond to significant incidents, we could be exposed to costly government enforcement actions and private litigation. In addition, our guests could lose confidence in our ability to protect their information, stop using our RedCards or loyalty programs, or stop shopping with us altogether, which could adversely affect our reputation, sales, and results of operations. operations, and financial condition. The legal and regulatory environment regarding information security, cybersecurity, and data privacy is dynamic, increasingly demanding, dynamic and has enhanced strict requirements for using and treating personal data. Complying with current or contemplated data protection laws and regulations may regulations, or any failure to comply, could cause us to incur substantial costs, require changes to our business practices, limit our ability to obtain data used to provide a differentiated guest experience, and expose us to further litigation and regulatory risks, each of which could adversely affect our reputation, results of operations.operations, and financial condition.

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Prior heading: Changes in our relationships with our vendors, changes in tax or trade policy, interruptions in our operations or supply chain, or increased commodity or supply chain costs could adversely affect our results of operations.

We are dependent on our vendors, including common carriers, to supply merchandise to our distribution centers, stores, and guests. As we continue to add capabilities to quickly move the appropriate amount of inventory at optimal operational costs through our supply chain, operating our replenishment and fulfillment network becomes more complex and challenging. If our replenishment and fulfillment network does not operate properly, if a vendor fails to deliver on its commitments, or if common carriers have difficulty providing capacity to meet demands for their services like they experienced at times during 2020 and 2021, in recent years, we could experience merchandise out-of-stocks, delivery delays or in shipping and receiving merchandise, and increased delivery costs, which could lead to lost sales and decreased guest confidence, and adversely affect our reputation and results of operations. A large portion of our the merchandise that we offer is sourced, directly or indirectly, from outside the U.S., with China as our single largest source. Any major changes in tax or trade policy, policy between the U.S. and countries from which we source merchandise, such as the imposition of additional tariffs or duties on imported products, between the U.S. and countries from which we source merchandise could require us to take certain actions, including for example raising prices on products we sell and seeking alternative sources of supply from vendors in other countries with whom we have less familiarity, which countries. Any of these actions could adversely affect our reputation, sales, reputation and our results of operations. Political or financial instability, currency fluctuations, the outbreak of pandemics or other illnesses (such as the COVID-19 pandemic), illnesses, labor shortages, labor unrest and activism, or strikes, transport capacity and costs, inflation, port security, weather conditions, natural disasters, armed conflicts, or other events that could alter or suspend our operations, slow or disrupt port activities, or affect foreign trade are beyond our control and could materially disrupt our supply of merchandise, increase our costs, and/or and adversely affect our results of operations. There For example, there have been periodic closings and ship diversions, labor disputes, and congestion disrupting U.S. ports, including those in California where we receive a significant portion of the products we source from outside the U.S. In addition, some vendors have had difficulty supplying us products in the quantities we seek. The combination of port disruptions, the COVID-19 pandemic, and other events in our supply chain We have caused us from time to make time made alternative arrangements to continue the flow of inventory, inventory as a result of supply chain disruptions in the U.S. and if other countries. If these types of events recur, worsen, or occur in other countries through which we source products, it may have a material impact on could increase our costs or inventory supply. Changes in the costs and adversely affect our supply of procuring inventory. In addition, prices of fuel and other commodities used in our merchandise or the costs related to that our supply chain depends on are historically volatile and subject to fluctuations based on a variety of international and domestic factors. Rapid and significant changes in commodity prices, as has occurred in recent years, could further increase our costs and adversely affect our results of operations.

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Prior heading: If services we obtain from third parties are unavailable, disrupted, or fail to meet our standards and expectations, our operations could be adversely affected.

We rely on third parties to support our business, business operations, including portions of our technology infrastructure, development, and support; our digital platforms; our platforms, replenishment and fulfillment operations; operations, store and supply chain infrastructure construction and remodel program; credit infrastructure, delivery services, guest contact centers, payment processing, and debit card transaction processing; extensions of credit for our RedCard program; infrastructure supporting our guest contact centers; aspects of our food offerings; and delivery services. 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, operations or if they fail to meet our performance standards and expectations, standards, then our reputation and results of operations could be adversely affected.

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Prior heading: Our earnings depend on the state of macroeconomic conditions and consumer confidence in the U.S.

Nearly all of our sales are in the U.S., making our results highly dependent on the health of the U.S. economy and U.S. consumer confidence, confidence and spending, which can be affected by a variety of factors, including inflation, interest rates, housing prices, unemployment rates, household debt and inflation. wage levels, and credit usage. In addition, the interconnected nature of the global economy means that international events such as armed conflicts, geopolitical conflicts, public health crises, energy availability, and market volatility can all affect macroeconomic conditions in the U.S. A deterioration in U.S. macroeconomic conditions or consumer confidence, the likelihood of which is made more uncertain by the unknown duration, severity, and lasting impact of the COVID-19 pandemic and recent increases in the inflation rate, confidence or spending could adversely affect our business in many ways, including slowing sales growth, reducing overall sales, and reducing gross margins. Such a deterioration could adversely affect additional areas of our business, such as asset impairment evaluations margins, and the amount of credit card profit-sharing revenue payments we receive under lowering our credit card program with TD Bank Group (TD), which owns the receivables generated by our proprietary credit cards. We could also receive lower profit-sharing payments if changes in consumer preferences regarding use revenue, each of revolving credit cards which could adversely affect the volume of new credit accounts, the amount of credit card program balances, and/or the ability our results of credit card holders to pay their balances.operations and financial condition.

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Prior heading: Uncharacteristic or significant weather conditions, natural disasters, and other catastrophic events could adversely affect our results of operations.

Uncharacteristic or significant weather conditions, including the physical impacts of climate change, can affect consumer shopping patterns, particularly in apparel and seasonal items, which could lead to lost lower sales or greater than expected markdowns and adversely affect our short-term results of operations. In addition, three of our largest we have significant operations in certain states by total sales are California, Texas, and Florida, areas where natural disasters are more prevalent. Natural disasters in those states or in other areas where our sales or operations are concentrated we operate could result in significant physical damage to or closure of one or more of our stores, distribution centers, facilities, or key vendors. In addition, weather conditions, natural disasters, and other catastrophic events, such as the COVID-19 pandemic, events in areas where we or our vendors have operate, or depend upon for continued operations, could adversely affect the availability or and cost of certain products within our supply chain, cause delays in the distribution of merchandise from our vendors to our distribution centers, stores, and guests, affect consumer purchasing power, or and reduce consumer demand, which demand. Any of these events could adversely affect our results of operations operations. The long-term effects of global climate change are expected to be widespread and unpredictable. The potential impacts of climate change present a variety of risks. The physical effects of climate change, such as extreme weather conditions, drought, and rising sea levels, could adversely affect our results of operations, including by increasing our costs energy costs, disrupting our supply chain, negatively impacting our workforce, damaging our stores, distribution centers, and lowering inventory, and threatening the habitability of the locations in which we operate. In addition to physical risks, the potential impacts of climate change also present transition risks, including regulatory and reputational risks. For example, we use commodities and energy inputs in our sales.operations that may face increased regulation due to climate change or other environmental concerns, which could increase our costs. Furthermore, any failure to achieve our goals with respect to reducing our impact on the environment, or perception of a failure to act responsibly with respect to the environment, could adversely affect our reputation and results of operations.

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Prior heading: We rely on a large, global, and changing workforce of team members, contractors, and temporary staffing. If we do not effectively manage our workforce and the concentration of work in certain global locations, our labor costs and results of operations could be adversely affected.

With over 400,000 team members, our workforce costs represent our largest operating expense, and our business is dependent on our ability to attract, train, and retain the appropriate mix of qualified team members, contractors, and temporary staffing and effectively organize and manage those resources as our business and strategic priorities change. staffing. Many team members are in entry-level or part-time positions with historically high turnover rates. rates historically. Our ability to meet our changing labor needs while controlling our costs is subject to external factors such as labor laws and regulations, unemployment levels, prevailing wage rates, benefit costs, changing demographics, and our reputation and relevance within the labor market. Our ability to meet those labor needs could be further strained by expanded laws, regulations, and mandates adopted in connection with the COVID-19 pandemic. If we are unable to attract and retain a workforce meeting our needs, our operations, guest service levels, support functions, and competitiveness could suffer and our results of operations could be adversely affected. We are periodically subject to labor organizing efforts and activism, which could negatively impact how we are perceived by team members and our overall reputation. If we become subject to one or more collective bargaining agreements in the future, it could adversely affect our labor costs, how we operate our business, and our results of operations. In addition to our United States operations, we have support offices in India and China, and any extended disruption of our operations in our different locations, whether due to labor difficulties or otherwise, could adversely affect our operations and financial results.results of operations.

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Prior heading: Failure to address product safety and sourcing concerns and meet evolving expectations for reporting on ESG matters could adversely affect our sales and results of operations.

If any of our merchandise offerings do not meet applicable safety standards or Target's or our guests’ expectations regarding safety, supply chain transparency, and responsible sourcing, we could experience lost sales and increased costs and be exposed to legal and reputational risk. All of risks and our results of operations could be adversely affected. Our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards. Events that give rise to actual, potential, actual or perceived product safety concerns, including food or drug contamination and product defects, could expose us to government enforcement action or actions and private litigation and result in costly product recalls and other liabilities. Our sourcing vendors, including any third parties selling through our digital channels, must also meet our expectations across multiple areas of social compliance, including supply chain transparency and responsible sourcing. We have a social compliance audit process that performs audits regularly, but we cannot continuously monitor every vendor, so we are also dependent on our vendors to ensure that the products we buy comply with our applicable standards. If we need to seek alternative sources of supply from vendors with whom we have less familiarity, the risk of our standards not being met may increase. Expectations from shareholders, guests, team members, and other third parties concerning ESG reporting have increased, and our ability to meet those expectations is dependent on a variety of factors, including cooperation from sourcing vendors and other third parties and having access to consistent and reliable data. Negative guest perceptions regarding the safety and sourcing of the products we sell and the sufficiency and transparency of our reporting on ESG matters, and events that give rise to actual, potential, or perceived compliance and social responsibility concerns could hurt our reputation, result in lost sales, cause harm our guests to seek alternative sources for their needs, and make it difficult reputation and costly for us to regain the confidence of adversely affect our guests.results of operations.

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Prior heading: Our failure to comply with applicable laws, or changes in these laws could increase our costs, reduce our margins, and lower our sales.

Our business is subject to a wide array variety of complex laws and regulations. Our expenses could increase and our operations could be adversely affected by law changes in law or adverse judicial developments involving our workforce, including an employer's employer’s obligation to recognize collective bargaining units, minimum wage requirements, advance scheduling notice requirements, health care or other mandates, the classification of exempt and non-exempt employees, and the classification of workers as either employees or independent contractors (particularly as it applies to our contractors. Our Shipt subsidiary, subsidiary is a technology company that connects Shipt members through its online marketplace with a network of independent contractors who select, purchase, and deliver groceries and household essentials ordered from Target and other retailers). retailers. The classification of workers as employees or independent contractors, in particular, is an area that is experiencing legal challenges and legislative changes. If our Our Shipt subsidiary has faced, and continues to face, legal challenges to its worker classification. If, as a result of judicial decisions or legislation, Shipt is required to treat its independent contractor network of independent contractors as employees, it could result in we may experience higher compensation digital fulfillment costs, which could adversely affect our results of operations and benefit costs. financial condition. Changes in the legal or regulatory environment affecting any other area of our business, including information security, cybersecurity cybersecurity, and data privacy, product safety, or payment methods and related fees, responsible sourcing, supply chain transparency, environmental protection, waste management, climate change, or other ESG matters, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices. and adversely affect our results of operations. In addition, if we fail to comply with other applicable laws and regulations, including the Foreign Corrupt Practices Act and other anti-bribery laws, we could be subject to reputation and legal risk, and reputational risks, including government enforcement action actions and class action civil litigation, which could adversely affect our results of operations by increasing our costs, reducing our margins, and lowering our sales.financial condition.

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