Dive Brief:
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Target on Monday said it plans to spend up to $300 million to boost wages and benefits. For employees at stores, supply chain facilities and corporate offices, the retailer will increase its starting hourly pay from $15 to a range between $15 and $24.
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The mass merchant is also making it easier for hourly workers to qualify for health benefits by lowering its minimum requirement from an average of 30 hours per week to 25, according to its press release. About 20% of its workforce will be newly eligible for such benefits.
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Target is also shortening the time workers must wait to avail themselves of health and retirement benefits. Most company medical plans will include “additional benefits, including virtual physical therapy at no cost, enhanced fertility benefits and other new wellness offerings,” the company said.
Dive Insight:
In 2017, Target announced it would boost its hourly starting wage to $15, and on Monday said that was accomplished nearly two years ago.
Now, with a tight labor market and some signs of strength in unionization efforts among retail employees, the mass merchant is stepping up further. The move stands in contrast to profitability measures in recent years that lead to a “less stable and less productive” workforce, according to Mark Cohen, director of retail studies at Columbia University’s Graduate School of Business.
“When you pursue growth by way of volume expansion and with it, customer satisfaction, you need to constantly improve the caliber and commitment of your workforce,” he said by email. “Obviously increased compensation and benefits, especially in a very tight labor market, go a long way toward accomplishing this. Costco has always been on this path. Amazon is clearly raising the bar of the entire industry and Target and Walmart are following their lead.”
While Costco has long been union-friendly, “I’m sure that a threat of unionization understandably plays a part in the calculus that retailers like Target, Walmart and Amazon are using,” Cohen said by email.
Target’s compensation improvements benefit its operations in key ways, according to retail consultant Brian Kelly. By appealing to a broader pool, the retailer can be choosier in hiring, he said by email. That allows it to bring associates onto the store floor who could help set itself apart from Walmart and other low-cost rivals.
Getting closer to a living wage helps boost consumers, which helps retailers, Kelly also said. Indeed, rising wages and near full employment have helped sustain strong consumer spending despite inflation, Telsey Advisory Group analysts said in a Monday research note.
“Target is focusing on people,” Kelly said. “People as a point of differentiation. People as a welcoming asset into the store. People as a goodwill ambassador. People as a customer.”
