Target Corp. wants to win the talent war.
With the unemployment rate near a 16-year low and intensifying competition for workers, the mass retailer on Monday said it will raise its minimum hourly wage for all employees to $11 an hour in October, with a commitment to increase it to $15 the minimum by the end of 2020. The $11 hourly wage will also apply to the 100,000 seasonal hourly workers Target plans to hire for the holidays.
Target employs about 323,000, 160 per store on average. The retailer said its wages are now market-competitive, with all stores above the federal minimum wage. The last time Target lifted wages was 2016 when its minimum hourly wage rose to $10.
The company pointed out that $11 an hour is higher than the minimum wage in 48 states, and matches the minimum wage in Massachusetts and Washington. In addition to pay, Target said it offers a variety of schedules to meet the needs of its diverse workforce, helping store teams to build schedules around associates’ availability. Target posts store schedules in advance, lets associates trade and pick up shifts at their stores, and doesn’t do on-call or snap scheduling.
“Target has a long history of investing in our team members,” said Target chairman and chief executive officer Brian Cornell. “Target has always offered market competitive wages to our team members. With this latest commitment, we’ll be providing even more meaningful pay, as well as the tools, training and support our team needs to build their skills, develop professionally, and offer the service and expertise that set Target apart.”
Gap Inc. in 2014 was one of the first apparel retailers to address the minimum wage issue, increasing hourly pay to $9. Reacting to pressure from critics, Wal-Mart said it would invest over two years $2.7 billion to increase its minimum wage to $9 an hour in April 2014, and pledged to boost it to $10 in February 2015. Other retailers, including the TJX Cos. Inc., followed suit. Target refused to discuss its wages. The retailer’s boilerplate statement on the subject was: “We pay market competitive rates and regularly benchmark the marketplace to ensure that our compensation and benefits packages will help us to both recruit and retain great talent.”
Target increased in April 2015 its minimum hourly pay to $9, from the federal minimum wage of $7.25 per hour at the time.
The size of Target’s latest investment wasn’t divulged, but retail analysts said the payroll expenses shouldn’t impact the retailer’s bottom line since Target reiterated its earnings and sales outlook for the third quarter and full year, apparently factoring the wage hike into its $7 billion invest plan, which includes renovating stores and opening new flexible format locations in cities and on college campuses.
Barclays analyst Matthew McClintock in a research note said the magnitude of Target’s 2020 goal of $15 per hour was surprising, “particularly given the company’s prior strategy to follow past leadership on this topic,” a reference to Wal-Mart. “Target did not publically announce a match of Wal-Mart’s move to $10 in 2016, although there were quiet rumors that Target made select wage increases to $10 that year.
“We remain bearish on Target as we estimate that a 50 percent increase in the minimum wage by 2020 could represent a multi-billion headwind to EBIT,” McClintock continued, noting that the Census estimates that mass merchants spend 51 percent of total expenses on labor, including wages and benefits. “We estimate that Target likely spends slightly more than taht at 61 percent. This implies total labor costs of slightly more than $8.1 billion in 2016, which in a simplistic scenario where all is considered store labor, that is at the minimum wage, would imply at most a $4 billion hit from the $15 minimum wage goal.”
Target said it expects third-quarter and fourth-quarter 2017 comp-store sales growth will be the range of the first and second quarters, with full-year 2017 comp-store sales growth flat to plus or minus 1 percent. Third-quarter adjusted earnings per share from continuing operations is expected to be $0.75 to $0.95, and adjusted full-year EPS, $4.34 to $4.54.