Target says about 40 million credit and debit card accounts may be affected by a data breach that occurred just as the holiday shopping season shifted into high gear.
The chain said customers who made purchases by swiping their cards at terminals in its U.S. stores between Nov. 27 and Dec. 15 may have had their accounts exposed. The stolen data includes customer names, credit and debit card numbers, card expiration dates and the three-digit security codes located on the backs of cards.
The data breach did not affect online purchases, the company said.
The stolen information included Target store brand cards and major card brands such as Visa and MasterCard.
"Target's first priority is preserving the trust of our guests and we have moved swiftly to address this issue, so guests can shop with confidence. We regret any inconvenience this may cause," Chairman, President and CEO Gregg Steinhafel said in a statement Thursday.
The Minneapolis company said it immediately told authorities and financial institutions once it became aware of the breach and that it is teaming with a third-party forensics firm to investigate and prevent future breaches. The company said it is putting all "appropriate resources" toward the issue.
Target Corp. advised customers to check their statements carefully. Those who see suspicious charges on the cards should report it to their credit card companies and call Target at 866-852-8680. Cases of identity theft can also be reported to law enforcement or the Federal Trade Commission.
Even if Target shoppers haven't noticed suspicious activity on their credit card accounts, a Target spokeswoman said, "we encourage everyone to be vigilant."
Target hasn't disclosed exactly how the data breach occurred, but said it has fixed the problem and credit card holders can continue shopping at its stores.
The company has 1,797 U.S. stores and 124 in Canada.
"The fact this breach can happen with all of their security in place is really alarming," said Avivah Litan, a security analyst with Gartner Research.
Litan noted that companies like Target spend millions of dollars each year on credit card security measures. Given the company's heavy security, Litan said she believes the theft may have been an inside job.
Target's breach comes at the height of the holiday shopping season and threatens to scare away shoppers worried about the safety of their personal data. The November and December period accounts for 20 percent, on average, of total retail industry sales.
In Wednesday morning's trading, Target's stock dipped $1.15, or 1.8 percent, to $62.40.
The incident is particularly troublesome for Target because it has used its branded credit and debit cards as a marketing tool to lure shoppers with a 5 percent discount.
The company said during its earnings call in November that as of October some 20 percent of store customers have the Target branded cards. This holiday season, Target added other incentives to use its cards. Two days before Thanksgiving, Target.com ran a special review sale with 25 exclusive offers, from electronics to housewares for those who used the branded card.
As a result of these incentives, households that activate a Target-branded card have increased their spending at the store by about 50 percent on average, the company said.
"This is how Target is getting more customers in the stores," said Brian Sozzi, CEO and Chief Equities Strategist. "It's telling people to use the card. It's been a big win. If they lose that trust, that person goes to Wal-Mart."
Target is just the latest retailer to be hit with a data breach. TJX Cos., which runs stores such as T.J. Maxx and Marshall's, had a breach that began in July 2005 that exposed at least 45.7 million credit and debit cards to possible fraud. The breach wasn't detected until December 2006. In June 2009 TJX agreed to pay $9.75 million in a settlement with multiple states related to the massive data theft but stressed at the time that it firmly believed it did not violate any consumer protection or data security laws.
At TJX, for at least 17 months, one or more intruders had free rein inside TJX's computers. Without anyone noticing, one or more intruders installed code on the discount retailer's systems to methodically unearth, collect and transmit account data from the millions of credit card and debit cards.
An even larger hack hit Sony in 2011. It had to rebuild trust among PlayStation Network gamers after hackers compromised personal information including credit card data on more than 100 million user accounts.
Greg Melich, an analyst at ISI International Strategy & Investment Group, wrote in a note published Thursday that Target's most important goal should be to maintain "customer trust and therefore longer-term loyalty."
Litan said she doubts the breach will have much of an effect on Target's sales, noting that TJX launched sales promotions immediately following the news of its breach. The promotions increased sales.
"People care more about discounts than security," Litan said.