Michaels Stores Investigates Data Breach

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Arts-and-crafts retailer Michaels Stores is the latest business to confirm that it's investigating an apparent hack attack against its systems resulting in the theft of shoppers' credit and debit card details.

"We recently learned of possible fraudulent activity on some US payment cards that had been used at Michaels, suggesting we may have experienced a data security attack," said Michaels CEO Chuck Rubin in a statement Friday.

"Although the investigation is ongoing, based on the information we have received and in light of the widely reported criminal efforts to penetrate the data systems of US retailers, we believe it is appropriate to notify our customers that a potential issue may have occurred," he added. The company also posted a link to the statement -- "Important Notice About Certain Customer Payment Card Information" -- at the top of its website's homepage.

Michaels' statement came just hours after security journalist Brian Krebs first reported that multiple sources in the banking industry said elevated levels of fraud were traced to the accounts of people who shopped at the retailer.

[Are retailers trying to shift the blame? See why one commentator says Target Mocks, Not Helps, Its Data Breach Victims.]

So far, however, Michaels has yet to offer any breach-related details, such as attack timing or the number of cards that may have been compromised. But the retailer did say Friday that it's brought in third-party digital forensic investigators, continues to work with law enforcement agencies, will offer regular updates about the investigation on the Michaels website, and will extend ID theft monitoring to anyone who was affected. "If we find as part of our investigation that any of our customers were affected, we will offer identity protection and credit monitoring services to them at no cost," Rubin said.

Michaels operates more than 1,250 stores in the United States and Canada -- some under the Aaron Brothers name -- and appears to have quickly gone into damage-control mode. Notably, the retailer Saturday began offering a seven-day "40% off any one regular price item" promotion. That fast response could relate to the company's plans to go public this year. According to a related document filed in December with the Securities and Exchange Commission, the retailer booked $4.4 billion in 2012 revenue.

The apparent Michaels breach suggests that the retailer is the latest victim of hackers wielding memory-scraping point-of-sale (POS) malware. Previous victims have included Target, Neiman Marcus, and a handful of other retailers that have yet to disclose that they were breached.

How bad have those breaches been? For starters, the Target breach resulted in the theft of 40 million credit and debit cards used by shoppers in Target's retail stores, as well as personal information on 70 million Target customers. Meanwhile, Neiman Marcus disclosed Thursday that 1.1 million credit and debit cards -- though not PIN codes -- were compromised by hackers during a three-month attack. Those cards were all used by shoppers in its Neiman Marcus and Last Call stores. To date, Discover, MasterCard, and Visa have reported seeing about 2,400 of the stolen payment cards being used for fraudulent purchases.

In the past 10 months, US-CERT, which is part of the Department of Homeland Security, has published three security advisories warning retailers about the increasing threat of POS-malware attacks, as well as how to protect themselves.

In other data breach news, Coca-Cola disclosed Friday that a laptop stolen by a former employee contained personal information -- including social security and driver's license numbers -- on 74,000 current and former employees in North America, including information on about 4,500 contractors and vendors.

Unlike the breaches at Target and Neiman Marcus, however, Coke said its data breach occurred after a former employee stole 55 company laptops over a six-year period. Coke said it recovered the laptops in November and December and began reviewing the 200,000 files collectively stored on the machines for signs of personal information.

Coke found that the exposed personal information had been stored on the laptops in unencrypted form, thus in violation of Coke's data-encryption security policies. The company told The Wall Street Journal that it notified people who were affected by the breach within 45 days, which is the time limit set by states with the most stringent data breach laws.

Mathew Schwartz is a freelance writer, editor, and photographer, as well the InformationWeek information security reporter.

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