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 Target management has informed store managers, who in turn have
started informing employees about the wage hike and most employees
who earn less than $10 per hour should see their base pay go up in
May, two sources with direct knowledge of the situation told
Reuters.
The $1-per-hour raise marks the second time Target has followed
Wal-Mart Stores Inc in raising base wages. It also comes as a
union-led push for a $15 minimum wage, the so-called “Fight for
Fifteen” movement, is gaining traction in cities across the country
and even has become a topic in the U.S. presidential campaign, with
Democratic candidate Bernie Sanders calling for a $15 “living wage.”
Target's decision reflects growing competition for workers in an
increasingly strong labor market. The number of Americans filing for
unemployment benefits has fallen to its lowest point in
42-1/2-years, and the jobless rate is only 5.0 percent.
Target last raised its minimum pay rate in April 2015 to $9 an hour,
up from the federal minimum wage of $7.25 per hour at the time. The
move last April matched a similar announcement by Wal-Mart. The
world's largest retailer in February 2015 said it will lift its base
pay to $10 an hour in 2016, a step it has implemented in recent
weeks.
 Target's plan will also raise pay for employees who already make
over $10 an hour. Such workers will be entitled to an annual merit
raise and a pay-grade hike, which is related to experience and
position of the employee, said the sources, who spoke on condition
of anonymity as they were not authorized to speak to the media.
Target declined to confirm it is offering the pay increase. "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, Target spokeswoman Molly
Snyder said.
Snyder said the company does not disclose details of its
compensation programs and declined to comment on how many of the
retailer's roughly 341,000 employees at its nearly 1,800 stores
would receive the raise.
The move to $10 an hour could put pressure on Target's earnings,
especially at a time when Target is investing billions to upgrade
its supply chain and technology infrastructure in order to tackle
chronic stock shortages. Target also is pushing for higher online
sales, which could potentially explain why it has lagged its larger
rival in setting the lead on wage increases, analysts said.
"This move will make it difficult for Target to meet its aggressive
profit projections," said Burt Flickinger, managing director of
retail consultancy Strategic Resource Group.
At its 2016 Analyst Day in March, Target said it expects annual
gross margin rates around 30 percent.
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Even before the wage hike, Barclays Capital Inc last month had
downgraded the stock from 'overweight' to 'underweight.' At the
time, Barclays analysts called the retailer's gross margin
projections "optimistic" due to the threat of rising labor costs and
other concerns.
Of the 26 analysts who cover the stock, 11 rate it a "buy," and 13
rate it a "hold," according to data from Thomson Reuters StarMine.
LABOR PROBLEMS
Target, which generally is considered to be a better employer due to
its competitive wages and compensation-related benefits than many
retail rivals, has in recent months seen a spate of labor-related
issues.
Last September, Target lost a bid to prevent the formation of a
micro-union by pharmacy workers in a New York store, which would
have marked the first time Target employed unionized workers in one
of its stores. Target later sold its pharmacy business to CVS Health
Corp.
Then earlier this month, a Target group leader filed a lawsuit
accusing the company of failing to pay overtime to workers with
low-level management responsibilities at its warehouses in New York
state.
Current and former employees contacted by Reuters this month said
the retailer cut hours in an apparent effort to offset the impact of
rising costs after it raised pay to $9 an hour last March.
Target's Snyder said the retailer has not changed how it approaches
scheduling and hours in its stores.
A current part-time employee, who spoke on condition of anonymity as
she was not authorized to speak to the media, said she averaged
about 25-26 hours every week before March 2015, but has
progressively seen her hours cut. She now averages at about 18-19
hours per week.
(Additional reporting by Nathan Layne in Chicago; Editing by David
Greising and Nick Zieminski)
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