Target to Boost Minimum Wages in Battle for Store Workers -- Update

By Khadeeja Safdar Features Dow Jones Newswires

Target Corp. said it is raising its minimum wage to $11 an hour starting next month and to $15 an hour within three years, as the retailer competes to fill low-wage jobs in a tighter labor market.

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The Minneapolis-based company, which employs about 323,000 people, said the new rate would apply to all staff as well as 100,000 temporary workers it plans to hire for the holidays. In the past, Target has resisted publicly commenting on its minimum wages. It quietly boosted starting pay to $10 an hour in 2016 after Wal-Mart Stores Inc. said it would increase wages for most of its U.S. workers.

The U.S. unemployment rate is near its lowest level in 16 years, driving competition in unskilled jobs such as cashiers and clerks where turnover is often high. During the holiday shopping season, big chains also must add tens of thousands of seasonal staff. Meanwhile, 19 states raised their minimum pay levels in January.

"We're investing to make sure that we recruit and retain the existing team, that we attract new team members and, importantly, that we provide an exceptional service environment," Chief Executive Brian Cornell said to reporters, adding that the move was tied to Target's holiday hiring plans.

He declined to say how much more Target would be spending on wages following the change, but maintained the company's previous financial projections for the year.

The retail industry is the largest private-sector employer in the U.S., and competition for hourly workers has ratcheted up both in traditional stores and distribution centers that fulfill online orders. Retail trade workers in the U.S. earn an average hourly wage of $15.35 as of August, an increase of about 10% from five years ago, according to Bureau of Labor Statistics data.

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Mr. Cornell is trying to turn around the retail chain's fortunes after it reported weak holiday sales last year and was forced to lower its profit and sales goals for the current fiscal year. Target, whose stock is down 19% so far this year, has been cutting prices, remodeling stores and ramping up spending on its supply chain and e-commerce capabilities. Some of those efforts paid off in the latest quarter as sales rose for the first time in a year.

Target's wage increase "is one more example of the investments retailers are making to compete successfully in an era of rapid transformation and disruption," said Matthew Shay, the president of the National Retail Federation, which has opposed higher wage legislation. "These decisions are being driven by a robust marketplace, not government mandates."

An hourly wage of $11 will match minimums in Massachusetts and Washington and is higher than required in the other 48 states. Two of the most populous states, New York and California, have passed legislation that would lift their lowest pay rate to $15 over several years. Currently, 29 states have set rates higher than the federal minimum wage, which has been $7.25 since 2009.

State and municipal-level wage increases won't pressure retailers much because market forces have already compelled them to raise their minimums in those areas, said Mark Zandi, chief economist at Moody's Analytics. "They've got a broad, long-term problem because the labor market is tight and it's going to get tighter," he said.

A 2014 study from the nonpartisan Congressional Budget Office found raising the federal minimum wage to $10.10 an hour would reduce job creation by 500,000 over two years. At the same time, the report estimated the increase in the federal minimum wage would raise the pay of 16.5 million workers who kept their jobs, including moving about 900,000 people above the poverty line.

For years, retailers have been increasing minimum wages to reduce costly turnover endemic to the industry. In 2015, Gap Inc. raised pay to at least $10 an hour, saying it hoped to gain an advantage over competitors. Last year, Costco Wholesale Corp. raised its starting hourly wage to $13.

Wal-Mart, which employs about 1.5 million Americans, helped accelerate the wage war in 2015, when it announced plans to raise wages to $9 an hour. The following year, Wal-Mart said new hires could earn $10 after a monthslong training course. Executives have said the wage investment and new training programs cost the company $2.7 billion, an expense that ate into profits and weighed on the stock.

Smaller companies are feeling the pressure as chains like Wal-Mart and Target make broad-based wage investments. Such moves "have had a trickle-down effect to the rest of the market," said William Rhodes, CEO of auto-parts retailer AutoZone Inc., last week. "It really is unprecedented in my career to see the wages go up the extent that they have this year."

Higher introductory pay rates have come with some challenges at retailers, with longer-tenured employees occasionally bristling when new colleagues are hired at wages it took them years to attain. Target's Mr. Cornell dismissed such concerns.

"I think this news is going to be very well received by our team," he said.

Target said it expects fiscal year per-share profit of $4.34 to $4.54, the same range it disclosed in August because the wage increase had been factored into the outlook. It expects full-year comparable sales growth to remain around flat.

--Sarah Nassauer and Eric Morath contributed to this article.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com

(END) Dow Jones Newswires

September 25, 2017 19:17 ET (23:17 GMT)