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How a Data Breach Hurts a Retailer's Bottom Line

Posted by Vijay Basani on Dec 23, 2016

Retailers will see some major financial impact following a big breach.
Retailers will see some major financial impact following a big breach.

Retailers are some of the most vulnerable organizations when it comes to data breaches. Due to the fact that these companies have to process enormous amounts of customer financial information, it simply makes sense that hackers would do everything they can to get past cybersecurity defenses. 

Outside of the fact that a significant cyberattack will forever change how customers view your company, these incidents generally have significant financial fallout. To that end, what can a retailer expect to deal with when they're the victim of a data breach?

"Organizations that have been the victim of a hack often report major losses."

Profits will most likely drop significantly

Customers simply don't want to risk the safety of their financial data by purchasing goods from a company that's previously been hit by a major cyberattack. Therefore, it makes sense that many organizations that have run into such an incident have reported major losses. 

When it comes to retail data breach cautionary tales, there are few better than the hack that befell Target in 2013. After the dust settled, around 110 million customers were thought to have lost control over some of their private information. 

Of course, such a massive attack caught the eye of the public, and people very quickly stopped going to Target for their shopping needs. The plummeting number of people who trusted the organization with their financial data took it's toll, and The New York Times' Elizabeth A. Harris reported that Target saw a 46 percent drop in quarterly profits compared to the same time the year before. 

"A big data breach can cause an incredible amount of financial damage."

While that number is certainly higher than other retailers due to the amount of coverage Target's story received, it's very clear that a major data breach can cause an incredible amount of financial damage. A smaller organization may not have been able to handle such a blow, and the incident should act as a warning for every retailer. 

The retailer may have to pay for customer protection

Outside of losses in revenue, it's also important to remember that the aftermath of a breach is generally extremely expensive. Specifically, most retailers that have been hacked take it upon themselves to distribute identity protection support to customers who may have been affected. In fact, Fortune reported that Eddie Bauer is doing so in response to a recent cyberattack that exposed the card data of many consumers. 

While this kind of move makes a lot of sense in terms of saving face and assuring customers that you have their best interest at heart, it certainly doesn't come cheap. Getting hacked is an incredibly expensive affair, and avoiding such an event altogether is obviously the better course of action.

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Tags: Cybercrime, Hacking, Data Breach, Retail

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