International analysis: Target expects sales to fall after 2013 data breach

To say it was not a jolly holiday for Target is probably an understatement. The general merchandise retailer anticipates comparable store sales at its US business to be down 2.5% in the fourth quarter. It originally expected a flat performance.

Target indicated that sales were running higher than expected before news of the data breach on December 19.

Since then, it appears shopper confidence in the retailer has tanked. Sales were weak in the immediate run-up to Christmas and since.

Target expects comparables to decline 2% to 6% from now through to the end of the quarter.

Poor sales performance notwithstanding, the retailer also continues to rack up costs associated with the ongoing data breach investigation and liability charges related to fraudulent payment card activities. These unexpected costs will cause a dent to Target’s bottom line in both 2013 and 2014. Not a great way to start the new year.

Target also revealed additional issues not previously disclosed about the data breach. Through ongoing investigations, it has been determined that certain shopper information, for example names, mailing addresses, phone numbers and email addresses - completely separate from the payment card data - was also stolen. This impacts 70 million individuals.

The retailer says it will try to contact affected consumers.

It indicates that people will have zero liability for the cost of any fraudulent charges arising from the data breach. And Target is offering one year of free credit monitoring and identity theft protection to everyone who shopped in its US stores. Enrolment in the programme is open at Target.com/databreach.

The data breach no longer looks like a blip on Target’s radar. The retailer has its work cut out to mend its public image and restore consumer confidence.

This will take time, attention and money. And it’s all happening when Target can ill afford to take its eye off of everyday operations.

Even prior to the data breach, Target was having trouble getting shoppers into its stores. Its third quarter marked the fourth consecutive quarter of traffic decline. And comparables were soft. It doesn’t sound like it will have a good fiscal 2013 to report on in about a month.

Stay tuned.

• Sandy Skrovan, research director - US, Planet Retail.