Can Target afford to pay (not pay) a $15 minimum wage?
Target has announced that it will extend a temporary $2 an hour wage hike, double-overtime pay and other benefits to its associates in recognition of their efforts during the novel coronavirus outbreak through July 4. The announcement comes in the same week the retailer reported big gains in same-store sales while seeing its first-quarter profits take a hit from the higher wages paid associates and a slowdown in sales of higher-margin items, such as apparel.
The retailer posted a same-store sales gain of 10.8 percent during the period, which includes 141 percent sales growth from Target’s digital channels. Its operating income, however, fell 58.7 percent year-over-year.
Target reported market share gains across its five core categories in the first quarter and CEO Brian Cornell remains bullish on his company’s outlook as states slowly begin to relax stay-at-home orders/guidance.
“Our team showed extraordinary resilience as guests relied on Target as a trusted resource for their families. With our stores at the center of our strategy, and a significant investment in the safety of our team and guests, our operations had the agility and flexibility needed to meet the changing needs of our business,” said Mr. Cornell. “With the dedication of our team, the benefit of a sustainable business model and a strong balance sheet, we are confident Target will emerge from this crisis an even stronger retailer, with higher affinity and trust from our guests.”
Most of Target’s first-quarter same-store sales growth came from its digital operations with stores fulfilling 80 percent of orders placed online. Comp sales grew from a 33 percent increase in February to 282 percent in April. The chain’s same-day services, including order pick-up, drive-up and Shipt deliveries, grew 278 percent during the quarter, accounting for roughly five percent of total comp sales growth.
The chain’s impressive sales growth did not seem to inspire investors, however. Its stock price rose less than one percent in premarket trading, CNBC reports. The lower profits posted by the chain is likely a concern following Target’s announcement that it is extending its temporary pay hikes through Independence Day. Another potential concern for investors is the pledge made by Target last year to lift its minimum hourly wage to $15 by the end of 2020. That is the effective rate it is currently paying hourly workers who have come on board at its current $13 an hour minimum.
The retailer is looking to offset higher costs by increasing market share and sales of higher-margin items, notably apparel, as more consumers venture from their homes and gradually return to stores. Target, long known for its fashion designer collaborations, announced earlier this week that it will launch “The Designer Dress Collection” with more than 70 dresses from LoveShack Fancy, Cushnie and Lisa Marie Fernandez.
In an effort to maintain safety for associates and customers in stores, Target is initially launching the collection online on June 6. The line will become available at the chain’s stores on June 15.
- Target Corporation Reports First Quarter Earnings – Target Corporation
- A Closer Look at Target’s Q1 2020 – Target Corporation
- Our Commitments – Target Corporation
- Introducing Target’s Latest Collaboration: The Designer Dress Collection – Target Corporation
- Target Corporation – Yahoo Finance
DISCUSSION QUESTIONS: What is your take on Target’s first-quarter results and what do you expect of the retailer over the next year? Will paying a higher hourly minimum wage help or hurt Target in its competition for customers with other retailers?