The U.S. Senate hearings on Target’s massive security breach continue to find fault with the retailer’s efforts to protect its customers data from theft. Speaking at the Senate Committee Hearing Wednesday, Target chief financial officer John Mulligan defended his company from heavy criticism.
Senate Commerce Committee Chairman Jay Rockefeller (D-W.Va.) said that while major retailers like Target routinely collect huge amounts of data on its shoppers, it neglects to take adequate measures to secure that data from cyber-invasions of privacy. Senator Rockefeller aggressively directed his criticisms at Mulligan, who was was appearing before the committee for the third time in the last two months.
Mulligan continued to mount a spirited defense of Target’s practices. “As long as we continue to have a guest lens and use that data for the value of our guest, we’re in a good place. We need to continue to invest and make it better. That’s the challenge for us.”
Target has withered under intense scrutiny ever since the company’s computer systems were breached. Hackers broke through Target’s online security system, accessing the personal data–financial and otherwise–of more than seventy million shoppers. The credit and debit card information of more than forty million people is now considered compromised.
Analysts predict that at least 15 percent of the credit cards could incur fraudulent charges, averaging as much as a few hundred dollars in illicit charges per card. The debacle could ultimately cost Target several billion dollars in total, with an estimated $1.1 billion in repayments to banks for unauthorized transactions.
Also, adding to these costs will be expenses associated with impending litigation. Currently, there are nearly seventy-class actions suits alleging that it failed to take adequate steps to ensure the safety of its customers. Tina Wolfson, an attorney at Ahdoot & Wolfson P.C., who is the lead attorney on one of the suits, said that Target’s failure “to maintain reasonable security procedures, and delays in notifying customers, will put her clients at risk for identity theft for years.” She continued, “This could be the biggest case I’ve seen in number of people affected.”
But the most pressing problem for Target’s management is still figuring out how to assuage the anxieties of shoppers wary of its security protocols. Many attribute Target’s difficulties to crucial missteps taken under chief executive Gregg Steinhafel’s direction. When the news about the cyber-breach first became public, there was some confusion regarding the scope of the customers affected. Target officials immediately knew at least forty million shoppers had their financial information fully accessed, and then subsequently discovered another seventy million may have been partially compromised. Steinhafel insisted reporting the sum of those two numbers–110 million–in order to avoid any suspicion that the company was less than forthcoming about the problem.
For the fourth fiscal quarter, Target’s net income declined 5.2% to $981 million, down from $1.04 billion from last year. Profit totaled $1.49 per share; analysts were generally forecasting $1.39. Target’s stock rose 2.9% on the strength of the news; last year its shares dropped 15 percent. Overall earnings before interest expenses and income taxes declined 22.4%, from $1.82 million to $1.43 million. Sales dipped 6.6% from $20.9 billion to $22.4 billion, a 2.5% decrease in comp-store sales. Even more ominous, net profits skid 46 percent to $520 million, down from $962 million.
For the full year 2013, Target’s sales declined 0.9% to $71.3 billion, down from $72 billion last year. For the same period, net profits dropped a substantial 34.3%.
Members of the Senate have been discussing a broad range of legislative approaches to Target’s security debacle including the creation of a special alert system that quickly informs customers when their information has been compromised and new regulatory powers for the Federal Trade Commission.