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10/20/2014
02:20 PM
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Nearly Half Of Consumers Will Punish Breached Retailers During Holidays

Consumers say they'll talk with their wallets if they hear their favorite store has played fast and loose with customer data.

The data breach gremlins could be coming home to roost for retailers this holiday season, and they're not coming by way of regulators or investors. According to a survey released this weekend, it's the consumers themselves who are holding retailers accountable. Conducted by Princeton Survey Research Associates on behalf of CreditCards.com, the survey showed that nearly half of consumers today would be less likely to shop at a store during the holiday season if that establishment suffered a breach.

The results show that 45% of consumers reported that they "probably" or "definitely" would avoid a store over the holidays if they found out it had a data breach. Further, the news of retail breaches has made consumers somewhat allergic to plastic -- approximately 48% say the bad press has made them more likely to use cash in favor of cards.

Beyond surveys like these, it has been difficult to calculate the losses suffered by retailers, such as Target and Home Depot, from changes of consumer and investor habits following big breaches. Last February, Target reported a 46% drop in profit in the financial quarter following the disclosure of its massive breach. However, it is hard to know if that was truly caused by the breach or simply correlated with it. There were other market forces at play then, including a costly expansion into Canada, according to The Wall Street Journal (subscription required).

More recently, neither Home Depot nor JPMorgan Chase has experienced stock dips as a result of their megabreaches. Some industry watchers have cited Home Depot's recent 2% stock uptick following the disclosure of its breach as evidence that consumers are experiencing "breach fatigue", and that retailers shouldn't fear long-term breach fallout. But on the flip side of this argument, it could just as easily be evidence of a strengthening overall market. In support of this, just last week the National Retail Federation reported that the average shopper plans to spend 5% more this year during the holiday shopping season than last year's busy season.

In spite of the inconclusive market data, consumer surveys have repeatedly shown that consumers are growing fed up with their merchants for shoddy security around sensitive information. In fact, just last month, HyTrust ran a survey that showed results similar to the one out this week. In that survey, 51% of consumers reported that they take business elsewhere after a breach that compromises information like addresses, Social Security numbers, and credit card details. More than a third of consumers said they believe the worst kinds of breaches are those that compromise Social Security numbers. Taking things a step further, the HyTrust poll showed that more 45% of consumers believe that corporate officers should be held accountable for breaches at their organizations, and that the companies should be considered "criminally negligent."

And this year, Javelin Research found that 54% of consumers would switch healthcare providers after a breach, 40% would switch banks, and 30% would shop at different retailers.

"A significant proportion of affected consumers discontinue or reduce their patronage post-breach," Al Pascual, senior analyst of security, risk, and fraud at Javelin Strategy & Research, said in a press release. "That's real money lost in customer churn and reduced sales, and certainly demonstrates how the reputation of the organization hits the bottom line."

Ericka Chickowski specializes in coverage of information technology and business innovation. She has focused on information security for the better part of a decade and regularly writes about the security industry as a contributor to Dark Reading.  View Full Bio

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Thomas Claburn
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Thomas Claburn,
User Rank: Ninja
10/20/2014 | 3:39:57 PM
maybe
They may, but consumers often say that they value privacy and security without actually taking action that counts.
Kelly Jackson Higgins
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Kelly Jackson Higgins,
User Rank: Strategist
10/20/2014 | 5:13:34 PM
Re: maybe
I did this post-TJX breach, but I didn't after Target. Mainly because I had breach fatigue at that point. I think many consumers are just now realizing what data breaches are all about, so they are initially reacting this way (boycotting). But as they get used to them, they probably will do what I did, and just shop away anyway.
prospecttoreza
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prospecttoreza,
User Rank: Strategist
10/21/2014 | 9:17:00 AM
Re: maybe
They also promise to start going to gym, quit smoking, and visit their elderly parents. :-(
Kelly Jackson Higgins
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Kelly Jackson Higgins,
User Rank: Strategist
10/21/2014 | 9:56:43 AM
Re: maybe
@prospecttoreza, you nailed it!
GonzSTL
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GonzSTL,
User Rank: Ninja
10/21/2014 | 10:03:48 AM
Re: maybe
People shop at specific stores for many reasons. People are also more aware of breaches, given the ever increasing number of them year after year. It is almost as if consumers in general think what security professionals have been saying all along – it isn't whether or not you will be breached, but when you will be breached. So call it breach fatigue or whatever, it probably won't deter most of them from shopping at a store they have become accustomed to. Now those who were dramatically impacted might, and justifiably so, but I'm not sure that it will be the majority who shop at that store. In addition, consumers may simply use cash instead of plastic, if they really like the store. Plus, with the lagging economy, people may also be more credit conscious and opt for cash spending. Regardless, a breach company still sports a black eye in front of their customers, and that is sometimes difficult to overcome. At the same time, I also believe that consumers are fed up with companies that do not practice safe computing around sensitive data, and want someone to pay dearly for security failures.
Whoopty
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Whoopty,
User Rank: Ninja
10/21/2014 | 10:39:56 AM
Follow through
Like the others have said, time will tell if people actually follow through on the claims. I wish more did vote with their wallets, as it's quite an effective way to enact change.

There's quite a few companies I refuse to deal with (often feeling like I'm biting my nose off to spite my face) because of certain practices. Sometimes it's because their security has been poor, but its more likely to be related to customer relations of business practices: like Apple's closed ecosystem. 
Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Strategist
10/21/2014 | 11:16:37 AM
Re: Follow through
I was in Home Depot over the weekend buying a ladder and as I was watching the cashier process my purchase on, shall we say,  a less than a state of the art POS terminal, I wondered whether I had  taken leave of my senses.  But then the moment passed and I leftwith a carriage full of items, paid for by credit card. I don't think consumers will ever be in the vanguard of payment reform. But who will be?  
Stratustician
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Stratustician,
User Rank: Moderator
10/21/2014 | 3:29:19 PM
Re: Follow through
The reality is that aside from the huge inconvenience if you have to get new credit cards, there really is no customer penalty for many folks.  Banks and credit card issuers usually refund fraudulent charges, so this I think has taken away most of the stigma.  If the convenience is still there for customers to purchase from these retailers, there will probably not be enough of a backlash for them to worry too much about customer perception.
Marilyn Cohodas
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Marilyn Cohodas,
User Rank: Strategist
10/21/2014 | 4:10:26 PM
Re: Follow through
I think you hit the nail on the head @Stratustician, until the card companies start losing money, there really is no great incentive for retail to change their payment practices..
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