More Retail Wage Hikes Likely in Wake of Target's Move

In a move that may pressure other retailers to lift wages, Target on Monday said it plans to raise its minimum hourly wage to $11 next month, with a goal to up that to $15 by the end of 2020.

The new hourly wage will affect thousands of Target employees in the country and also apply to the more than 100,000 hourly seasonal hires for the upcoming holiday period, the company said. Target spokeswoman Jenna Reck declined to detail the financial impact of the investment or the average hourly wage employees make. Target has more than 323,000 employees.

The move comes when overall unemployment rates are near 16-year lows, and when the industry’s turnover rate has risen. The stakes are especially high heading into the industry’s critical holiday sales season as brick-and-mortar retailers in particular are betting on better in-store customer service to fight off online sellers.

A survey of retail executives by Retail Systems Research (RSR) signaled how critically important employees are to in-store operations. The executives pointed to employee-related issues as the most significant opportunities to improve in-store shopping experiences.

Retail hourly store employees tend to have the highest turnover rate in the industry, according to the Hay Group division of executive search and recruiting firm Korn Ferry in a November 2016 study. Worse yet, the study showed the hourly store employee turnover rate last year jumped to 65%, the highest since before the Great Recession, up from 57% in 2015.

For Target, this is the third significant wage increase in recent years, and it is far from alone in pushing wages higher. The most recent move means that its new minimum hourly wage tops Walmart's by $1. 

Walmart too has had multiple wage hikes in recent years, and some of those increases sparked similar moves, including hikes at Target and TJX. 

In January 2016, Walmart said it was giving a pay hike to more than 1.2 million Walmart US and Sam’s Club employees, including raising minimum hourly wage to at least $10 an hour for existing employees. Walmart has also started what it called Walmart Training Academy to give employees additional training and resources.

Walmart’s two-year, $2.7 billion investment in higher wages and worker development has been cited as driving a variety of in-store improvements at the company. “These initiatives are paying off for our customers through cleaner stores, friendlier service and faster check-out times,” Walmart CEO Doug McMillon said on the company’s Q4 earnings call in February.

Target CEO Brian Cornell has promised to give employees more training and tools in the hope that will translate to employees offering “service and expertise” that will set the company apart. The company also said the moves will help it recruit and retain talent and provide better experience for customers.

In the restaurant sector, fast food giant McDonald’s has credited its own wage hikes in helping to improve employee morale and customer experience. 

(To be sure, the industry’s wage hikes have come after years of labor rights groups’ protests including the ongoing “Fight for $15.”)

While workers at restaurants and retailers are still routinely among the lowest paid, data from the US Department of Labor’s Bureau of Labor Statistics showed the average hourly wage of production and nonsupervisory employees in the US retail trade has risen to a projected $15.35 in August from $12.78 in August 2007. Target's new minimum hourly wage of $11 is higher than the minimum wage in 48 states, and matches the minimum wage in Massachusetts and Washington. The federal minimum wage is $7.25 an hour.

Some studies have showed that happy retail employees do eventually make up for happier bottom lines. For instance, a UBS Evidence Lab study earlier this year of more than 150,000 employee satisfaction reviews from job review site Glassdoor found that overall satisfaction levels at Walmart, Target and other big retailers reached new highs.

“With retailers already facing secularly declining brick and mortar traffic, employee satisfaction is becoming an even more important weapon to stabilize economic models at physical stores,” UBS analysts said at the time.