NEW YORK – Target (TGT) is raising its minimum hourly wage for its workers to $11 starting next month and then to $15 by the end of 2020 in a move it says will help it better recruit and retain top-quality staff and provide a better shopping experience for its customers.
The initiative, announced Monday, is part of the discounter’s overall strategy to reinvent its business unveiled earlier this year that includes remodeling stores, expanding its online services and opening up smaller urban locations.
Target quietly raised entry-level hourly wages to $10 last year from $9 from the previous year, following initiatives by Walmart (WMT) and others to hike wages in a fiercely competitive marketplace. But Target’s hike to $15 per hour far exceeds not only the federal minimum of $7.25 per hour but the hourly base pay at Walmart, the nation’s largest private employer, and plenty of its other retail peers whose minimum hourly pay now hovers around $10.
As part of its $2.7 billion investment in workers, Walmart had raised its entry-level hourly pay for workers to $9 in 2015 and then to $10 in 2016. With Target’s outsized influence in the retailing world, its hike could force rivals to match the pay in order to compete.
“We see this not only as an investment in our team but an investment in an elevated experience for our guests and the communities we serve,” Brian Cornell, CEO of Target, told reporters on a call Friday.
The changes come at a time when there’s growing concern for the plight of the hourly worker. Thousands of workers have staged protests to call attention to their financial struggles and to fight for $15 hourly pay. Last November’s election of a Republican-controlled Congress dampened hopes of an increase in the $7.25 per-hour federal minimum wage. But advocates have continued to press for hikes on the state and local level.
At the same time, competition for lower-skilled workers has heated up, and retailers, likely hobbled by the threat of e-commerce, are falling behind. As shoppers get more mobile-savvy, retailers are seeking sales staff who are more skilled at customer service and in technology such as using iPads to check out inventory. But with the unemployment rate near a 16-year low, the most desirable retail workers feel more confident in hopping from job to job.
Thirty-two percent of all first jobs in the U.S. are in retail, according to The National Retail Federation, the nation’s largest retail group, and stores overall have more job openings now than they did a few years ago.
Hourly pay at restaurants and hotels is up 3.5 percent from a year earlier, a much better rise than the 2.5 percent gain for all employees. For workers at transportation and warehousing companies, where e-commerce growth is fueling hiring, pay is up 2.7 percent in the past year.
Retailers, however, have lifted pay just 1.8 percent in the past year. That may be spurring more workers to leave for better opportunities: Separate government data shows the number of retail workers quitting their jobs this year and last is at the highest in a decade.
The average hourly pay for cashiers is now $10.14, according to the Hay Group’s survey of 140 retailers with annual sales of at least $500 million. The survey was conducted in May. A year ago, the hourly pay was $9.79.
Target said its minimum hourly wage of $11 is higher than the minimum wage in 48 states and matches the minimum wage in Massachusetts and Washington. It says the pay hike will affect thousands of its more than 300,000 workers, but it declined to quantify the percentage of its workforce. It said the increase to $11 per hour will apply to the more than 100,000 hourly workers that Target will be hiring for the holiday season.
Target declined to say what the average pay will be for its hourly workers with the increased wages.
The Minneapolis-based company reiterated its third-quarter and full-year profit guidance but said it would update investors early next year about how the wage investments will affect long-term profits.
Target’s wage increases come as the discounter is seeing signs that its turnaround efforts are starting to win back shoppers.
In August, Target reported that a key sales figure rose in the second quarter, its revenue beat Wall Street expectations and its online sales jumped 32 percent. The increase for the key sales measure reversed four straight quarters of declines. At that time, the company also boosted its earnings expectations for the year.
Target is spending $7 billion over three years to remodel old stores, open small ones in cities and college towns and offer faster delivery for online orders. It’s also adding more clothing and furniture brands and said its children’s line Cat & Jack brought in $2 billion in sales since its launch a year ago.
Cornell said Target has been moving toward dedicated workers in specific areas like beauty and clothing, and the wage increases will only help improve customer experience.
Walmart has been benefiting from its investment in its workers. The Bentonville, Arkansas-based retailer has seen lower turnover among workers and has gotten much better scores by customers for its service. Walmart’s namesake U.S. division reported a 1.8 percent increase in revenue at stores opened at least a year during its fiscal second quarter, marking the 12th straight period of gains. Walmart’s wage investments, however, did take a big bite out of profits.
