Target's data-security nightmare threatens to drive off holiday shoppers during the company's busiest time of year.
The nation's second-largest discounter acknowledged Thursday that data connected to about 40 million credit and debit card accounts was stolen as part of a breach that began over the Thanksgiving weekend.
The theft marks the second-largest credit card breach in U.S. history, exceeded only by a scam that began in 2005 involving retailer TJX Cos. and affected at least 45.7 million card users.
Target's disclosure came a day after reports that the company was investigating a breach.
Customers who made purchases by swiping their cards at its U.S. stores between Nov. 27 and Dec. 15 may have had their accounts exposed. The stolen data included customer names, credit and debit card numbers, card expiration dates and the embedded code on the magnetic strip on back of the card, Target said.
There was no indication that the three- or four-digit security numbers visible on the back of the card were affected.
The data breach did not affect online purchases, the company said.
Target has not disclosed exactly how the breach occurred but said it has fixed the problem.
Large companies spend millions of dollars each year on credit-card security measures. Given the company's heavy security, the theft may have been an inside job, said Avivah Litan, a security analyst with Gartner Research.
"The fact this breach can happen with all of their security in place is really alarming," Litan said.
Jason Oxman, CEO of the Electronics Transaction Association, which represents the payments technology industry, said past data breaches have been "heavily organized and sophisticated."
Last year, global credit and debit card fraud losses reached $11.27 billion, up 11. 4 percent over the previous year, according to The Nilson Report, which tracks global payments. And while credit and debit card fraud has been on the rise, it's because the overall payment industry has expanded. In fact, Nilson's publisher David Robertson said credit and debit card fraud still accounts for less than 6 cents of every $100 spent.
Target, which has almost 1,800 stores in the U.S. and 124 in Canada, said it immediately told authorities and financial institutions once it became aware of the breach on Dec. 15. The company is teaming with a third-party forensics firm to investigate and prevent future problems.
The credit card breach poses a serious problem and threatens to scare away shoppers who worry about the safety of their personal data.
"This is close to the worst time to have it happen," said Jeremy Robinson-Leon, a principal at Group Gordon, a corporate and crisis public relations firm. "If I am a Target customer, I think I would be much more likely to go to a competitor over the next few days, rather than risk the potential to have my information be compromised."
Target advised customers Thursday 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.
"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," Chairman, President and CEO Gregg Steinhafel said Thursday in a statement.
Many displeased customers left angry comments on the company's Facebook page. Some threatened to stop shopping at the store. Many complained they could not get through to the call center and could not get on Target's branded credit card website. The company apologized and said it was "working hard" to resolve the issue and adding more workers to field calls and fix website issues.
Christopher Browning, of Chesterfield, Va., said he was the victim of credit card fraud earlier this week and believes it was tied to a purchase he made at Target with his Visa card on Black Friday. When he called Visa on Thursday, the card issuer could not confirm his suspicions. He said he has not been able to get through to Target's call center.
On Monday, Browning received a call from his bank's anti-fraud unit saying that there were two attempts to use his credit card in California — one at a casino in Tracey, Calif., for $8,000 and the other at a casino in Pacheco, for $3,000. Both occurred on Sunday and both were denied. He canceled his credit card and plans to use cash.
"I won't shop at Target again until the people behind this theft are caught or the reasons for the breach are identified and fixed," he said.
Brianna Byrnes, of Kansas City, Mo., a student at the University of Missouri-Kansas City and a call center worker, said she made a Target purchase during the affected period. The situation made her "a little bit" nervous, but she still planned to shop for toys at the store.
"I've never had anyone steal my identity. I guess it's taking a risk."
Target's stock dropped more than 2 percent, or $1.40, to $62.15 on Thursday.
The incident is particularly troublesome for Target because it has used its store-branded credit and debit cards as a marketing tool to attract shoppers with a 5 percent discount.
During an earnings call in November, the company said some 20 percent of store customers as of October have the Target-branded cards. In fact, 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."
TJX Cos., which runs stores such as T.J. Maxx and Marshall's, had a breach that began in July 2005 and exposed at least 45.7 million credit and debit cards to possible fraud. The breach was not detected until December 2006.
Without anyone noticing, one or more intruders installed code on the discount retailer's systems to methodically collect and transmit account data from millions of cards.
In 2009, TJX agreed to pay $9.75 million in a settlement with multiple states.
In 2011, an even larger hack hit Sony, which had to rebuild trust among PlayStation Network gamers after hackers compromised personal information, including credit card data, on more than 100 million user accounts.
Litan doubts the breach will have much 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.
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Associated Press writers Michelle Chapman in New York and Heather Hollingsworth in Kansas City, Mo., contributed to this report.
