Target to Adopt $15 Minimum Wage by 2020

Target to Adopt $15 Minimum Wage by 2020

Target announced on Monday that it would raise the minimum hourly wage for store employees to $11 next month, with an aim to raise its pay floor to $15 an hour by the end of 2020. The move reflects the retail giant’s efforts to turn around its sales performance and compete for talent in a tight market with high turnover, Fortune’s Phil Wahba reports:

“Making this investment in our Target team will allow us to continue to recruit and retain strong team members to serve our guests,” Target CEO Brian Cornell told reporters on a media call last week. Target said the raises would affect “thousands” of workers but remained vague on specifics. The company employs some 323,000 people year round and this year, is ramping up its holiday period hiring with 100,000 seasonal staff for the run up to Christmas, a 43% increase over last year. The higher wages will apply to seasonal workers as well.

In its most recent quarter, Target said comparable sales rose 1.3%, better than expected, and shopper store visits rose 2.1% even as e-commerce grew 32%, suggesting its strategy of blending stores and digital sales is working. Target has invested heavily in new store areas for pickup of online orders, parts of the store that require dedicated staff, as does the section of the store that fills online orders with that store’s inventory. Target has also assigned dedicated staff for its apparel and beauty areas so they can give better informed advice to shoppers, part of its efforts to improve the shopping experience in its stores.

These moves reflect broader trends in the big-box retail market, with industry leader Walmart making similar moves. Walmart has also been investing heavily in online shopping, acquiring the e-tail startup Jet.com last summer and hiring Jet CEO Marc Lore to run its entire e-commerce operation. It likewise aims to leverage its army of store employees to improve efficiency and customer service in its e-commerce business, and has credited its strong performance in recent years to investments it has made in its workforce.

Target’s decision also keeps it ahead of the curve in many states that are raising their minimum wages: The $11 per hour rate it is adopting next month matches the current minimum wages in Massachusetts and Washington state and exceeds the statutory minimum in every other state. Only Washington, DC, with its $12.50 minimum wage, currently exceeds it. Several states, plus DC, are also planning to raise their minimum wages over the coming years to rates ranging from $12 to $15 an hour, while pay floors are also rising at the local level in cities like Seattle.

It is not for the sake of future regulatory compliance, however, that Target is raising wages for its lowest-paid employees. In the past year and a half, we have seen companies from JPMorgan Chase to Starbucks to Allstate raise their minimum wages voluntarily for two main reasons: For one, a super-tight talent market is forcing organizations to compete for even low-skill employees, and for another, companies are increasingly seeing pro-employee policies as a way to differentiate themselves to customers as well as employees—something we’re calling “HR as PR” and seeing more and more of in the current political climate.

For a company like Target in a high-turnover industry, the cost savings from improved retention due to a higher minimum wage could actually exceed the higher payroll costs the policy change entails, our own Brian Kropp tells Zlati Meyer at USA Today:

“How much you pay is the No. 1 reason why someone chooses one job over another,” said [Kropp]. “The hourly workforce will change jobs for a 25-cent difference.”

He explained that at some companies, the turnover rate can be as high as 200%, which means lots of money spent on employee training. Offering higher wages may reduce the number of workers who quit and then need to be replaced and retrained. “That’s a huge cost savings for a company,” Kropp added.