Target, the Minneapolis-based retailer, has released its latest financial figures, revealing that it has booked $162 million in expenses for the 2013 hack of its client data. This has led to media sources to report that the hack has cost the company $162 million. But, the cost is actually much higher than that.
Cost vs. “Cost”
Quoting techcrunch.com on the latest Q4 earnings that Target published:
The figure, revealed in the company’s Q4 earnings published today, includes $4 million in Q4, and $191 million in gross expenses for 2014, as well as $61 million gross for 2013. Target says that the gross number was offset in part by insurance receivables of $46 million for 2014 and $44 million for 2013.
If you add up all these numbers (taking care not to include the $4 million in Q4 since it pertains to the 2014 figure), you do indeed get $162 million. It’s a whopper. A bigger whopper is the true cost of the data breach, which excludes the insurance payouts. Adding back in the $90 million gives a figure of $252 million.
It may be semantics but there’s a difference between what the breach cost Target and what the breach cost. I mean, if the insurance had covered everything, would one go around saying that the hack didn’t cost anything? Obviously that doesn’t make any sense. More importantly, it downplays the level of damage that the hack had on the company.
Expect More. Pay More
The above figures are not the end of the story however:
This is also not including whatever expenses Target may incur as a result of class action lawsuits filed after the breach, or wider damage to its reputation with customers
The latter, to be honest, is probably a non-issue in the long run. The same Q4 filing shows that the company has beat analysts’ revenue estimates, and cnbc.com reports that the company’s comparable same store sales rose in the last quarter.
Such revelations are in line with past data breaches: even the grandfather of all retailer data breach debacles, the TJX data breach of 2007, showed that being the victim of a hack had a negligible effect on sales. Coincidentally, that breach also cost the company around $250 million.
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