Target Falls Deeper Into the Abyss

In the rare event that you have been enjoying a lengthy cruise on the Mediterranean and haven't heard about the recent and unfortunate Target (NYSE: TGT  ) news, the company has been the victim of a security breach that affected 40 million customers. However, the word "victim" is used loosely.

A retailer has a responsibility to protect the financial information of its customers. Despite the excuses its given, Target has failed. This has led to an enormous number of angry customers and negative press, and the situation has only gotten worse. They say that when it rains it pours, but this is a monsoon. Rather than Target seamlessly dealing with its security breach situation, it has fumbled the ball more than once. In addition to the loss of 40 million credit card numbers, Target has also admitted that 40,000 gift cards were incorrectly scanned by cashiers, resulting in these cards not being activated. 

Empty gifts
Some people love gift cards; others hate them. But they are certainly popular. And receiving one gives you the freedom to shop for whatever you want.  All is well until you receive a phone call, text, or email from your aunt, where she states that her Target gift card doesn't work. This makes it look like you attempted to pull a fast one on a relative -- not good. Your heart immediately sinks to your gut, a lump forms in your throat, and beads of sweat appear on your forehead. You attempt to comfort your aunt by telling her that you will get to the bottom of it. Meanwhile, in the back of your mind, you feel rage toward Target for embarrassing you. The only way to get revenge is to switch to a competitor, such as Wal-Mart (NYSE: WMT  ) or Amazon (NASDAQ: AMZN  ) .

While this is a hypothetical scenario, it likely has plenty of merit. If 40 million people were victimized financially because they shopped at Target, and up to 40,000 gift cards weren't activated, then it's highly likely that at least a small portion of these shoppers are going to switch brands. Their decision will depend on whether they prefer to shop live or online. 

As far as finding the solution for ole' aunty, all you have to do is visit a Target customer service desk or call the number on the back of the card for assistance. Easy solution, right? Not exactly.

High call volumes
Due to recent developments, Target is unable to handle extremely high call volumes. That might sound like a justifiable excuse, but given Amazon's deep commitment to its customers above all else (including sacrificing consistent profits), this would likely never happen at Amazon. It's also highly unlikely to happen at Wal-Mart, because Wal-Mart knows that it can ill afford such a misstep if it wants to keep Amazon from stealing more market share. Target was in the same boat, and recent Target misfortunes are likely to favor Wal-Mart.

So you wait on the phone for a Target customer representative, but to no avail. The wait is likely lengthy, but be thankful that you're not Katie Johnson from Arizona, who waited 5 hours and 45 minutes before giving up. She bought her boyfriend an iPod Nano, but it was stolen from the porch. She attempted to visit a Target store's customer service desk, but a representative told her to call the same number. She then emailed and tweeted the company, but only received automated responses. The message being sent from Target: "You're just a number to us." It took media attention for Target to contact Johnson directly. After these events, Johnson no longer wants to shop at Target even though she used to love the store.

Considering all these negative events, Target is now flirting with incompetence. 

Market share shift
No guarantees can be made, but investing is more logical than most people realize. If millions of Target customers are disappointed, then some of them are going to switch to Wal-Mart or Amazon. This will lead to market-share gains for Wal-Mart and Amazon. One company's loss is another's gain. Over the past year, Wal-Mart has delivered top-line growth of 1.22%, slightly higher than Target at 0.69%. Wal-Mart had already established a lead over Target in the brick-and-mortar retail world, and recent events are likely to expand this lead. However, please do your own due diligence prior to investing. 

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Comments from our Foolish Readers

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  • Report this Comment On January 13, 2014, at 7:46 PM, etbob1 wrote:

    Target might just be guessing how many customers are affected. First they said 40 million. Then 70 million. Then 40,000 bad gift cards. Very round numbers, all look to be highly rounded off guesswork.

  • Report this Comment On January 13, 2014, at 10:30 PM, me2014 wrote:

    i will never shop at target again unless i have cash in hand to pay for it.

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