The retail industry typically manages large amounts of sensitive customer data, and unfortunately is a prime target for cybercriminals. In early 2023, JD Sports experienced a significant cyber-attack that compromised the personal information of over 10 million customers. Hackers accessed a server containing online order details, which allowed the breach to extend across other brands within the company. Incidents like these highlight the critical importance of data sovereignty in retail.
Data sovereignty reduces these risks by establishing strict, location-specific regulations that businesses must follow to protect both corporate data and client information. In the retail industry, these laws are essential to maintaining customer trust and business integrity.
This article will explore why data sovereignty is essential for the retail sector, examine key data sovereignty laws by country, and show how InCountry can help you stay compliant with these regulations.
What is data sovereignty in the retail industry?
Data sovereignty is the privacy principle that all the data collected in a country or region must be subject to all data laws applicable in that country. Applied to the retail industry, data sovereignty seeks to ensure that data generated by retail businesses, especially customer data, must be collected, stored, and processed according to the laws of the country where the data originated.
Global retail businesses utilize digital tools that collect large amounts of customer data, and data are a prime target for hackers. Maintaining compliance with sovereignty laws not only improves your security against these attacks, it also protects your organization from possible penalties for non-compliance. We shall review some of the key aspects of data sovereignty below:
Data localization
Some data sovereignty laws require Retailers to store customer data within the borders of the country where it was collected to comply with local data residency for retail requirements. This may involve setting up local data centres or using cloud providers with data centres in the relevant jurisdiction. China is an example of a country where data localization is required.
Consumer trust and data protection
Customers share personal and financial information for purchases, loyalty programs, and online shopping, so retailers are tasked with safeguarding this data to build and maintain trust. By adhering to local laws and demonstrating robust data protection, retailers can reinforce consumer confidence, which is crucial to stay competitive.
Data transfer and operational challenges
Ensuring data sovereignty can pose operational challenges for retailers. They may need to adapt their data storage, transfer, and processing practices, and often work with multiple cloud providers or data centres to meet varying regional requirements. It can also lead to complexities in data analytics, as data held in different countries may not be easily integrated or analyzed together due to sovereignty restrictions.
Understanding and complying with data sovereignty principles are very important. Retailers can protect their customers’ privacy, build trust, and avoid legal and reputational risks by maintaining compliance.
Why e-commerce data sovereignty is critical?
Data sovereignty in e-commerce is critical for so many reasons. From ensuring the security of clients’ data to saving the retailer from the negative consequences of data breaches, etc., the benefits go on. We shall discuss some of them in this section.
- Building consumer trust
This has to be one of the strongest arguments for e-commerce data sovereignty laws. With online transactions, customers often share sensitive personal and payment information. Demonstrating compliance with local data protection laws helps e-commerce companies build trust and loyalty, which are vital for customer retention and reputation in a competitive space.
- Compliance with local data laws
Different countries and regions have unique regulations, such as GDPR in the EU or CCPA in California, which dictate how consumer data should be managed. Compliance with applicable data sovereignty laws ensures that your retail company avoid fines and penalties.
- Data security and risk management
Adhering to data sovereignty rules helps e-commerce companies protect customer data against breaches and misuse, particularly as cyberattacks become more frequent. Secure, localized data storage aligns with regulatory standards and reduces the risk of data breaches, which can lead to costly legal and financial consequences.
- Facilitating market access and growth
By respecting data sovereignty, e-commerce companies can confidently expand into new markets without facing legal or operational barriers. It allows companies to operate globally while managing data responsibly and in line with local expectations.
- Competitive advantage
For global e-commerce players, adhering to data sovereignty can become a competitive advantage. Being compliant with local data laws allows companies to enter new markets without legal hindrances and adapt faster to regulatory changes. Businesses that prioritize data sovereignty can differentiate themselves in competitive markets by offering higher security and compliance standards.
Retail data sovereignty laws by country
In this section, we shall review data protection laws for retail businesses in the following countries/regions:
- China
- European Union
- United States
- South Africa
China’s retail data sovereignty laws
China’s retail data sovereignty laws are derived from the following Chinese data protection regulations:
- Cybersecurity Law (CSL) of 2017.
- Data Security Law (DSL) of 2021.
- Personal Information Protection Law (PIPL) of 2021.
These laws aim to protect national security, maintain control over data, and safeguard personal information. They also impact the way retailers collect, store, and process customer data, especially for global e-commerce companies operating in China. In this section, we shall highlight some of the provisions of these laws that apply to global retail businesses operating in China.
- Data localization requirements:
China mandates that certain types of data, especially personal and “important data,” must be stored within the country. This is a central principle of the Cybersecurity Law (CSL) and the Data Security Law (DSL). Retailers that collect personal or sensitive data in China must store it on Chinese servers, making it accessible to Chinese regulatory bodies if it becomes necessary.
- Cross-border data transfers:
The Personal Information Protection Law restricts the transfer of personal data outside China unless strict requirements are met, such as obtaining user consent, conducting security assessments, and implementing specific security measures such as standard contractual clauses (SCCs). Retailers looking to transfer data out of China for processing must also justify the necessity and receive regulatory approval.
- Consumer privacy protection:
Under the PIPL, China has established clear rights for consumers, including the right to know how their data is used, the right to restrict or refuse processing, and the right to delete or correct data. Retailers must inform customers about data collection practices, ensuring transparency and the right to opt out when necessary.
- Stringent compliance and enforcement:
Chinese authorities actively enforce these laws, with fines, suspensions, and even bans for non-compliance. For example, fines can be as high as 5% of annual revenue, which can be substantial for large retail and e-commerce businesses.
China’s retail data sovereignty regulations require retailers to store data locally, control cross-border data flows, categorize data based on sensitivity, and protect consumer privacy. These regulations ensure China maintains control over data generated within its borders, impacting how international retailers and e-commerce companies manage and store consumer information.
European Union’s retail data sovereignty laws
The European Union’s retail data sovereignty laws are centred around the General Data Protection Regulation (GDPR), which is one of the most comprehensive data protection frameworks globally. Designed to empower EU residents with control over their personal information, the GDPR establishes strict requirements for how retailers operating within the EU must handle, store, and transfer customer data. Below are some of the provisions of the GDPR that apply to Global Retail Businesses with operations in Europe:
- Data localization and sovereignty
While GDPR does not explicitly mandate data localization, it requires all retail companies operating in the EU to follow its stringent data protection standards, regardless of where the data is stored. This has led many EU-based retailers and companies serving EU customers to adopt local data storage and processing to ensure compliance and facilitate oversight by EU regulators.
- Cross-border data transfers
GDPR places strict limitations on data transfers to countries outside the EU, only allowing transfers to countries with equivalent data protection standards. If retailers need to transfer data to a non-EU country that lacks GDPR-compliant laws (such as the U.S.), they must use additional safeguards, like standard contractual clauses (SCCs) or binding corporate rules (BCRs), to protect the data.
- Data minimization and purpose limitations
GDPR mandates that retailers collect only the data necessary for specific purposes and retain it only for as long as it is required. This means that retailers must avoid excessive data collection and should not use data for purposes unrelated to their initial intent unless they have clear consumer consent.
- Consumer rights and transparency
GDPR emphasizes consumer rights over their data, such as the right to access, correct, delete, and restrict processing of their personal data. Retailers must be transparent about data collection practices, purposes, and storage durations. This information should be clearly outlined in privacy policies.
- Data security and accountability
GDPR requires retailers to implement strict data security measures, such as encryption, pseudonymization, and regular audits, to protect consumer data from unauthorized access or breaches. The regulation also holds companies accountable by requiring them to appoint Data Protection Officers (DPOs) for oversight and to conduct regular impact assessments for high-risk processing activities.
United States of America’s retail data sovereignty laws
In the United States, retail data sovereignty is governed by a mix of federal, state, and sector-specific laws rather than a single comprehensive framework like the GDPR. US data sovereignty laws focus on consumer privacy, data protection, and cross-border data flows, with the most influential regulations coming from individual states and industry standards. We shall discuss some key highlights below:
- State-level privacy laws
The U.S. has several state-specific privacy laws that shape data sovereignty practices, with California’s Consumer Privacy Act (CCPA) and California Privacy Rights Act (CPRA) being the most influential. These laws grant California residents specific rights regarding their personal data, including the right to know what data is collected, the right to opt out of data sales, the right to delete data, and the right to access and correct information. Colorado, Virginia, and a few other states have also enacted privacy laws with similar protections, creating a patchwork of regulations across the U.S. These laws dictate the pace for retailers operating in these states.
- Cross-border data transfers
The U.S. generally has fewer restrictions on cross-border data transfers than the EU, allowing more flexibility for retailers to store and process data internationally.
- Data security requirements
While the U.S. does not mandate data localization, many states require that companies implement reasonable security measures to protect personal information. For instance, laws in states like New York and Massachusetts require companies to encrypt sensitive data, perform risk assessments, and establish breach notification protocols.
- Consumer rights and transparency
U.S. state privacy laws like CCPA and CPRA give consumers some rights over their personal data, but these are less comprehensive than GDPR. Consumers generally have the right to know what data is collected, the right to access and delete it, and the right to opt out of data sales. However, these rights vary by state, creating a complex regulatory landscape for retailers in the US.
- Enforcement and penalties
While the US approach is less stringent than GDPR, non-compliance can still lead to penalties. For example, under CCPA, companies can face fines of up to $7,500 per intentional violation. Federal agencies, such as the Federal Trade Commission (FTC), also impose fines for unfair or deceptive practices related to consumer privacy.
Although the data privacy practice varies across states currently, we expect that when their proposed American Privacy Rights Act (APRA) is adopted at the federal level, it will unify data requirements across the states.
South Africa’s retail data sovereignty laws
South Africa’s data sovereignty laws for retail are largely defined by the Protection of Personal Information Act (POPIA), which regulates how businesses, including retailers, collect, store, and process personal information. POPIA aims to safeguard personal data and aligns with international standards. Below are some provisions of the POPIA that are relevant for retailers in South Africa:
- Data localization and cross-border transfers
While POPIA does not strictly mandate data localization within South Africa, it imposes significant restrictions on cross-border data transfers. Personal data may only be transferred outside South Africa if the receiving country has adequate data protection laws, if the consumer consents, or if a binding agreement ensures the data is protected in line with POPIA standards. Retailers, especially those engaging with international partners or cloud storage, must carefully manage cross-border data flows.
- Conditions for lawful data processing
POPIA outlines several conditions for lawful data processing that apply to retailers. They are as follows:
- Retailers must ensure that data is collected and processed in compliance with POPIA.
- Data should only be collected for a specific, lawful purpose, and retailers must obtain consent where necessary.
- Retailers must inform consumers of the purpose of data collection and cannot use it for unrelated purposes.
- Data should be relevant to the purpose and retained only as long as necessary.
- Retailers are required to protect personal information against loss, damage, or unauthorized access with strict security measures.
- Transparency and disclosure
Retailers are obligated to inform consumers about how their data will be used and disclose any third-party recipients. POPIA mandates clear, transparent communication around data practices, requiring privacy policies that detail data collection, usage, storage, and retention practices.
- Data security and breach notification
POPIA mandates that retailers implement adequate security measures to protect data. In case of a data breach, retailers must notify the Information Regulator and affected consumers promptly. This notification should detail the breach’s nature, its impact, and the steps taken to mitigate risks. Compliance with data security standards is essential to avoid reputational damage and legal consequences.
- Penalties for non-compliance
The Information Regulator enforces POPIA and can impose significant penalties for violations. Non-compliance may lead to administrative fines up to ZAR 10 million (about USD 650,000) or, in severe cases, imprisonment for responsible individuals.
E-commerce data sovereignty challenges
Below are some major challenges e-commerce data sovereignty regulations currently face globally:
- Cross-border data transfer restrictions
Many countries have strict laws regarding the transfer of personal data across borders, often allowing it only if the destination country has adequate data protection measures (e.g., GDPR in the EU). For e-commerce businesses that operate globally, this creates logistical hurdles, as they must either establish local data centers or implement complex compliance measures, such as Standard Contractual Clauses (SCCs) and data encryption protocols, to legally transfer and store data internationally.
- Compliance with diverse regulatory standards
E-commerce companies face the challenge of adhering to multiple data privacy laws, such as GDPR (EU), CCPA (California), PIPL (China), POPIA (South Africa), etc. Each law has its requirements regarding consent, data retention, and consumer rights, which can differ significantly. Managing compliance across these jurisdictions requires extensive legal expertise, significant technological adjustments, and continuous monitoring of regulatory changes. This is another retail data sovereignty challenge.
- Consumer privacy and consent management
As privacy laws increasingly empower consumers to control their data, e-commerce companies must obtain explicit consent for data collection, explain how data will be used, and provide easy access for users to modify or delete their information. This adds complexity to website design and customer data management, as companies need robust, user-friendly systems to capture and manage consumer preferences across jurisdictions.
- Impact on innovation and data-driven insights
Data sovereignty laws for e-commerce can hinder the global flow of data, making it difficult for e-commerce companies to leverage data-driven insights and artificial intelligence across markets. For example, with data stored locally in different regions, it becomes harder to integrate data for comprehensive analysis, personalized marketing, or predictive analytics, impacting the ability to innovate and optimize customer experiences globally.
- Costs and resource allocation
Complying with data sovereignty laws for retail requires significant investments in IT infrastructure, legal counsel, compliance teams, and data management systems. Smaller e-commerce companies, in particular, may struggle to keep up with these costs, which can limit their ability to expand internationally. Even larger companies may find that compliance costs divert resources from other strategic areas.
How InCountry can help global companies stay compliant with e-commerce data sovereignty laws
Data drives every aspect of e-commerce, from targeted advertising and inventory management to efficient shipping. While it optimizes decision-making and profitability, data alone doesn’t directly generate revenue. Managing compliance, however, can quickly sidetrack your team from focusing on other business priorities.
That’s where InCountry comes in. With a proven track record across diverse industries, InCountry helps organizations securely manage data compliance. Our global network of data centers keeps your data within its country of origin, meeting all localization and residency requirements while ensuring worldwide accessibility.
InCountry’s cloud storage solutions offer robust data protection, securing information both at rest and in transit. Seamlessly integrating into your existing CRM systems, our tools simplify compliance, minimizing disruption and maximizing efficiency.
Reach out today to learn how InCountry can streamline compliance, secure your data, and deliver measurable value to your e-commerce business.