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Target Sued Over Security Breach

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The Christmas spirit at specialty retailer Target Corp. (TGT) was dampened by media reports pointing to more lawsuits following its massive credit and debit card security breach. Last week, Target acknowledged that nearly 40 million credit and debit accounts of its customers were hacked. According to the company, the hacking took place during the holiday season – from a day before Thanksgiving up to Dec 15.

A source familiar with the investigation authorities claimed that the company was alerted by credit card processors who detected an increase in dubious transactions pertaining to cards used at Target stores.

In an attempt to make reparation, Target is trying to woo back its customers. Over the weekend, the company had allowed a 10% discount to customers. However, it will require time to regain customers’ confidence.

Though the company did not disclose how the lapse occurred, it assured it was taking the help of federal law enforcement and external experts to tighten security to avoid similar frauds, going forward.

In 2007, the biggest security breach in U.S history was detected when The TJX Companies, Inc. (TJX) – a leading off-price retailer of apparel and home fashions –reported data theft involving nearly 90 million credit and debit cards over a span of about one and a half years. Ever since, companies like Wal-Mart Stores Inc. (WMT) as well as Target have been deploying substantial cash to tighten security.

However, security and industry experts have pointed out a major flaw in the card payment system. Unlike Europe and Canada, credit card in the U.S. uses a magnetic strip to store data. For the contemporary sophisticated hacking technology, obtaining card information is effortless and as a result U.S. remains highly vulnerable to card scams.

Outside the U.S., cards have digital chips to contain data, which generate a new code after every use and thus makes hacking difficult.

The credit and debit card security breach of Target’s consumers could result in loss of millions of dollars. However, lawyers and other experts on the matter remain tight-lipped as to who is likely to bear the expense. Lawyers believe that Target could be slapped with more litigation charges in the coming days. Though public memory tends to be short lived, the scandal could mar the retailer’s performance in the crucial holiday season.

Target is the second largest discounter and operates 1,797 stores in the U.S. It currently carries a Zacks Rank #3 (Hold). A better-ranked retail stock is PriceSmart Inc. (PSMT) with a Zacks Rank #2 (Buy).

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