Target to increase hourly base pay to $15 by end of 2020

Target Corp. 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 announced 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 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 Stores Inc. had raised its entry-level hourly pay for workers to $9 in 2015 and then to $10 in 2016. With Target's large influence in the retail, its hike could force some 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.

Shares of the Minneapolis company fell 2 percent early Monday morning as investors worried about how much the wage hike would hurt the bottom line. Target reiterated its third-quarter and full-year profit guidance but said that it would update investors early next year about how higher wages will affect long-term profits.

Hourly workers

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 raise 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 says that 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.

Retail precedent?

Ken Perkins, president of Retail Metrics LLC., a retail research firm, called Target's decision "astute." But he says only healthy rivals will be able to afford to match Target's hourly pay hike, creating a larger divide between thriving stores and those that are struggling.

"Target is really trying to gain market share in an environment where there is tremendous upheaval," Perkins said. But he believes that there may be only a few dozen retailers like Best Buy, Home Depot and Walmart that can mirror what Target is doing.

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 is also adding more clothing and furniture brands, and said that its children's line Cat & Jack brought in $2 billion in sales since its launch a year ago.

Cornell said that 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.