An increasingly competitive labour market has prompted this move which is likely to have a significant impact on its earnings.
With labour groups pressuring Target Corp for higher wages, compounded by a highly competitive job market, the company, as per sources, is likely to provide its employees $10 an hour as a minimum wage.
The discount retailer has informed its store managers who in turn have started informing employees about the impending wage hike, it’s second in a year. As per two sources with direct knowledge of the situation, Target’s employees will see their base pay rise in May.
Incidentally Wal-Mart has also increased its basic wages. Labour unions have in fact pushed for a $15 minimum wage in their so-called “Fight for Fifteen” movement, which has gained traction and has even gone up to become a topic in the U.S. presidential campaign with Bernie Sanders calling for a $15 “living wage.”
Target’s action reflects a growing strengthening of a strong labour market with un-employment rates in the U.S currently hovering at 5%.
For employees who already make more than $10 an hour, their pay rates will also see a hike. They will be entitled to a merit pay raise annually depending on their experience and position, as per sources who spoke on the condition of anonymity since they weren’t authorised to speak to the media.
When contacted, Target decline to confirm the pay hike.
“We pay market competitive rates and regularly benchmark the marketplace to ensure that our compensation and benefits packages will help us to both recruit and retain great talent” said Molly Snyder, Target’s spokeswoman.
She went on to add, that Target does not disclose the details of its compensation program while politely declining to comment how many of the 341,000 employees at its 1,800 stores would be beneficiaries of this pay hike.
Impact on earnings
With Target funnelling in billions to upgrade its infrastructure in technology and supply chain, so as to minimise its chronic stock shortages, the move to hike up basic wages to a minimum of $10, could put its earnings under increased pressure.
On the other hand, its focus on increasing its online sales could explain why it lagged behind its rivals in setting the lead on a wage hike, opines analysts.
“This move will make it difficult for Target to meet its aggressive profit projections,” said Burt Flickinger, managing director Strategic Resource Group, a retail consultancy.
Earlier in March this year, at its Analyst Day, Target had disclosed that it expects its annual gross margin rates to be around 30%.
Before the wage hike, Barclays Capital Inc. had downgraded the stock from ‘overweight’ to ‘underweight’ since its analysts felt its gross margin projections are overly “optimistic”, especially in the light of surging labour costs and other concerns.