Target is giving its workers a pay raise. As of October 2017, all of the store’s employees will make at least $11 an hour. The pay bumps won’t stop there. The company plans to gradually increase its minimum wage to $15 an hour by 2020.
Workers at the Minnesota-based discount retailer already earn more than the federal minimum wage of $7.25. In 2016, the company began paying every employee at least $10 an hour. The median wage for retail salespeople is $10.90 an hour, according to the Bureau of Labor Statistics.
A salary bump is welcome news for current Target workers, as well as the 100,000 employees it plans to hire over the upcoming holiday season. But the store isn’t handing out bigger paychecks just to be nice. There are some solid business reasons behind Target’s choice to increase its minimum wage so dramatically over the next few years. Here are eight good reasons why Target is giving workers a raise.
1. It needs to keep up with Walmart
There’s no bigger brick-and-mortar retail rival for Target than Walmart, with the two mega-chains battling not just for customers but also for employees. Walmart has made a big deal in recent years about raising its minimum wage to $10 an hour, and Target has raised its wages to keep up.
Now, Target is the one setting the pace for pay, issuing “the latest volley in a wage war,” according to Bloomberg. Offering workers higher salaries makes Target a more attractive employer than its biggest competitor. Plus, higher wages could help the store stand out from other retailers, as well.
2. Other stores are raising wages, too
The federal minimum wage has been stuck at $7.25 an hour for the past decade, though it’s significantly higher in certain states and cities. But some stores aren’t waiting for the government to tell them to pay workers more. Costco pays entry-level workers $13 to $13.50 an hour. At Ikea, hourly employees start at $11.87 an hour, a rate determined by the MIT Living Wage Calculator. People working at the Gap, Old Navy, and Banana Republic make at least $10 an hour. In order to get people to stock its shelves and ring up purchases, Target needs to offer similar pay.
But why are these stores paying people more than the minimum wage when they could get away with paying less? Because they found they needed to raise salaries to attract workers.
3. Hiring is getting harder
“We’ve always offered market-competitive wages to our team members,” Target CEO Brian Cornell said in a news release. Beating wages offered by other employers not only makes Target more appealing to people looking for a job, but it can also keep current employees from looking elsewhere for work.
4. Better pay will keep workers from quitting
Turnover is costly for businesses. Paying workers more makes it more likely they’ll stick around. But if you skimp on pay, workers will constantly be searching for better opportunities, and in the current low-unemployment environment they’re more likely to find them.
“The biggest piece of leverage an employee has is to say, ‘Look, I can quit and go to this other place,'” Heidi Shierholz, a senior economist at the Economic Policy Institute, told the Post. “When that starts happening, employers have to raise wages.”
Attracting and retaining employees isn’t the only reason for Target’s wage hike. The company is betting the move will make for happier customers, too.
5. Customers will be happier
A store full of satisfied employees makes for a better shopping experience for customers. When Walmart raised its wages, scores on customer service surveys went up, as did sales, according to Fortune. Customer service at McDonald’s also improved after it raised wages. Target might get a similar bump. The store has also added dedicated workers in certain departments, such as beauty, to provide a better shopping experience and is investing in space for online order pickup in stores, which also requires dedicated workers.
“Making this investment in our Target team will allow us to continue to recruit and retain strong team members to serve our guests,” Cornell said during a call with reporters.
Not only will better worker pay make for more satisfied customers, but the stores themselves might become better places to shop.
6. The stores will be nicer
Raising wages for employees led to cleaner stores and better-stocked shelves for Walmart, noted Bloomberg. Target might see a similar benefit from increasing pay for its workers. The chain is also spending $7 billion to refurbish stores and open new locations. All of that should add up to a more pleasant shopping experience for Target customers, who will hopefully be more excited to visit the stores and spend money there — a financial win for the company in the long run.
7. It could make Target money in the long run
Raising wages costs money, especially when your workforce numbers in the hundreds of thousands. But the move could be good for Target’s bottom line overall. For one, it could cut down on the expense of recruiting and training new workers to replace those who quit. Plus, more helpful staff and a better in-store experience could give the chain an edge over some of its competitors. In general, retailers that pay higher wages and invest in employees tend to have low prices, better customers service, and better financial performance than stores that pay lower wages, according to the Harvard Business Review.
And then there’s the incalculable value of good publicity.
8. It’s good PR
Target didn’t announce a big pay raise for low-wage workers just to make itself look good, but the favorable headlines the move generated certainly don’t hurt. The news is likely to make some shoppers feel better about patronizing the store, especially it they’re supportive of raising the minimum wage. The news might also catch the eye of those looking for work, especially before the holidays, encouraging them to apply at Target rather than another retailer. Both could help Target, which wants to make sure its end-of-year shopping season doesn’t repeat 2016’s disappointing results.
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