Target's Data Breach Is Worse than Sony's or Citgroup's

Target's Data Breach Is Worse than Sony's or Citgroup's

We all know about Target's data breach situation by now, and while making broad statements about the negative implications of this event is common (which is something that I'm also guilty of doing), not many people are looking at hard data. While the information below shouldn't be looked at as the ultimate determination for Target's near-term (and possibly long-term) potential, it's a metric to strongly consider.

Related events
2011 was a bad year for data breaches, with Sony's PlayStation platform and Citigroup both being victims of data theft. The PlayStation data breach affected approximately 100 million people, a much higher number than the estimated 40 million people affected by the Target data breach. However, you always need to look beyond the numbers.

According to YouGov's BrandIndex (tracks public perception of thousands of brands across the world every day) it took eight weeks for PlayStation's brand recovery. This relatively quick recovery likely relates to the targeted consumers for PlayStation which are primarily kids, teens, and young adults. This audience tends not to have a lot of money in their accounts, if any at all. They also care a lot more about beating the next game, or their next opponent, than they do about growing their net worth. Therefore, it was somewhat easy for Sony to overcome this hurdle.

Prior to the data breach, the PlayStation brand maintained a Buzz score (which indicates popularity of a brand based on scores of 100 to negative 100) of +5. A day after the data breach, PlayStation's Buzz score slid to -14. That's bad, but given the circumstances, it's not terrible. That was also the maximum drop, at 19 points. After just one week, the PlayStation's Buzz score recovered slightly to -10. This is still a negative number, but it indicated that the majority of the damage had already been done, and that a recovery was imminent.

Citigroup's data breach affected 360,000 accounts and included names, account numbers, and email addresses. Unlike the Target data breach, however, it didn't include the three-digit security code on the back of the cards. Without that information or other data like Social Security numbers and expiration dates, Citigroup comforted its customers by announcing that it would be difficult for the thieves to commit fraud. Citigroup also announced that it would enhance its procedures to better protect customer information.

Citigroup's brand recovery only took four weeks. Interestingly, Citigroup's Buzz score (and reputation) was already in negative territory prior to the data breach, at -15. After the data breach, Citigroup's Buzz score dropped to -36, a 21-point decline. One week later, though, Citigroup's Buzz score somewhat recovered to -26.

Keep those numbers in mind when looking at Target's situation.

A deeper hole
Unlike Sony and Citigroup prior to the times of their data breaches, Target held a strong reputation with a Buzz score of +26. However, that score plummeted to -9 the day after the breach, a 35-point decline.

The main problems for Target compared to the above incidents is that the majority of its customers are adults that do care about their financial situations above video gaming performance, and more data was stolen than in the Citigroup data breach . This is why Target's Buzz score (and reputation among consumers) fell even further; its latest Buzz score reading was -19 as of Dec. 30, 2013. This indicates a 45-point slide. Remember, the maximum Buzz score declines for PlayStation and Citigroup following their data breaches were 19 points and 21 points, respectively. Target's Buzz score decline is more than double that of Citigroup's.

The bottom line
Without a strong consumer reputation, Target is doomed to sales declines. Even if you think about it from the simplest perspective, not as many people are likely to sign-up for REDcard accounts (which Target has relied on to help fuel top-line growth) due to a lack of trust. This is important, as REDcard members tend to spend more than the average Target customer. In simplest terms, Target's downside risk might now outweigh its upside potential, at least for the near term.

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Originally published