Target looks to out-people competition

Discussion
Photo: Target
Mar 07, 2018
George Anderson

Target CEO Brian Cornell says it’s the company’s employees that set it apart from its many rivals and he’s committed to continue making investments to attract the best talent even if Wall Street doesn’t approve.

Yesterday, the Target saw its stock price drop 4.45 percent over concerns that the financial investments it is making in its people, stores and digital operations will weigh on profitability. Mr. Cornell, however, has taken the view that its these very investments that will enable Target to win over customers and grow its business now and over the longer haul.

The chain increased the starting wage it pays hourly employees to $11 in October. It has announced it will further increase that to $12 an hour later this spring. Target has set a goal of increasing its minimum wage to $15 an hour by 2020. Higher wages not only help the retailer attract applicants and reduce turnover in a tight labor market, but give the company a competitive advantage, according to Mr. Cornell.

Target saw a 30 percent increase in applicants when it announced its higher hourly minimum before the holiday selling season.

“We had a much stronger pool of talent to hire from,” Mr. Cornell said on the company’s fourth quarter earnings call yesterday (via Seeking Alpha). “But, the benefits of that investment go much further than just the short-term seasonal boost. Our leadership position on wage establishes Target as an employer of choice and we will drive preference for years to come.”

Target reported a same-store sales gain of 3.6 percent during the fourth quarter as the company reported traffic gains in stores and online. The chain’s comparable online sales grew 29 percent during the quarter on top of a 34 percent gain in the same period last year.

DISCUSSION QUESTIONS: Do you think investments made in people typically provide strong returns for retailers? Is Brian Cornell right to stick to Target’s plan despite the negative sentiment from analysts and investors?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Retailers are just beginning to explore the concept of making investments in in-store people and yes, I think they will find they reap strong returns."
"The human factor is a huge differentiator — making back-office decisions, restocking shelves, or analyzing data or engaging customers..."
"While there is no doubt that improving the quality of the staff will have benefits, I’m not sure this was Target’s biggest problem."

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24 Comments on "Target looks to out-people competition"


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Art Suriano
BrainTrust

There is no doubt that higher wages will attract more people applying for the job and with the right screening, Target should easily be able to select the top talent. However, just paying a higher wage isn’t the only solution. Training is imperative along with redefining the store associate job description. I don’t care how much an associate is getting paid if they still have their head down doing tasks while ignoring the customers. What will keep the in-store experience alive is store associates who properly engage the customer and make them feel special. Higher wages are smart but so is the right training and, most importantly, developing a store culture that each associate understands, and a belief that there is no one and nothing more important than the customer.

Mark Ryski
BrainTrust

Cornell is taking the long view on this and I believe it will pay out. The correlation of staffing to in-store conversion rates and customer experience is well established and Target’s strategy of investing in front-line staff will ultimately be reflected in their financial results. Trying to please Wall Street is short-sighted — even a 3.6 percent positive comp doesn’t make the fickle market happy. I applaud Cornell’s resolve.

Bob Phibbs
BrainTrust

It’s always the people, not the product or the discount that counts. As Macy’s wrong-headedly expands their Backstage department of misfit clothes that I wrote about in this post, Off-Price Retail Cannot Be The Way Forward, Customer Service Must Be, Target is showing they understand the hard work. The hard work is people, having more, paying more and I hope training more. You can’t discount your way to profitability. At some point, you have to provide a more engaging experience. That takes people.

Paula Rosenblum
BrainTrust

I think retailers are just beginning to explore the concept of actually making investments in in-store people and, yes, I think they will find they reap strong returns. It’s one critical part of creating a differentiated in-store experience. In fact, I don’t think retailers have any choice at all. It’s a must-do.

Dave Bruno
BrainTrust

I applaud the “long game” approach to managing the retail enterprise espoused by Mr. Cornell and Target. One only need look to Amazon and Costco, two of Target’s fiercest rivals, for successful examples of this approach. Amazon’s early commitment to investment in digital operations has paid obvious dividends, and Costco’s success as a wage scale pioneer is well documented. I hope Target’s actions help the industry (and the Street) move beyond our relentless focus on quarter-end results to a commitment to investments that fuel long-term health and differentiation.

Ralph Jacobson
BrainTrust

When done right, people are the last great differentiator. Great move!

Charles Dimov
Guest

This is a great strategy on Target’s part — differentiating from a retailer like Amazon with people. Train them well, give them some solid technology tools to enable them to be helpful to customers and promote a culture of helping the customer and making it a positive in-store experience. Those three elements will set them apart. And YES, to Wall Street, these steps will pay dividends.

Lee Peterson
BrainTrust

I’ve been waiting what seems like years to hear this! From anyone! There simply is NO greater retail asset than the people you have, especially those that interact with your customers in any way. Forget about digital kiosks, THIS will pay off.

Gene Detroyer
BrainTrust

Why are we treating this like it is a great new idea? In retail, your people make you or break you. Did Cornell wake up at 2 a.m. with a eureka?

Matt Sebek
BrainTrust

For the last five years, brands have over-calibrated on digital customer experience. It has created significant disparities between customers walking into a store and the people working there.

Simply, brands have to differentiate themselves in traditional brick-and-mortar stores by providing a delightful, human experiences that consumers simply cannot find online (e.g., real-time dashboards, information about customers pre/during/post visit, homegrown PoS systems).

I admire Target’s multifaceted approach to their growth plan both inside their stores and outside their four walls (through acquisitions like Shipt).

Richard J. George, Ph.D.
BrainTrust

If brick-and-mortar retailers expect to survive in the technology era they need to ensure that the “high touch” opportunities are resourced by competent, outgoing staff in the store. Raising the minimum wage is a start. Resources need to be dedicated to developing, rewarding and empowering these front-liners such that Target becomes the destination of choice.

Leaders lead from the front. Target’s planned investments in people as well as technology are the ante. I like that Cornell is focusing on Main Street not simply Wall Street.

David Weinand
BrainTrust

I love the fact that Target is thinking beyond the next quarter. If any retailer is going to deliver on the promise of creating a more meaningful customer experience, it can only be done with a better frontline workforce. All the technology in the world is useless if the people using it are not competent enough to apply it. Also, it’s a well known fact that the cost of turnover is a killer for retailers — If it’s around $3,500 to replace an employee, as has been published, it doesn’t take long to prove ROI with a little higher wages.

Steve Montgomery
BrainTrust

Retailers see employees either as an investment or a cost. Target’s investment approach will help them create a better shopping experience and that in turn will lead to higher sales than they would otherwise achieve. Art is right on — investment in people does not stop at paying a higher wage. It is the starting point. It attracts more people. Target can select employees from a larger pool of people and then provide them with the training and tools they need.

Matt Henderson
Guest

When one considers the continual performance of retailers that are known to invest in their people and culture, such as H-E-B, Publix, Wegmans, Costco, QuikTrip, etc., is there any doubt that such investments will be beneficial to both the customer and the company? I completely agree with some of the previous comments that higher wages alone won’t lead to improvement, but when coupled with an emphasis on the importance of people, and a sense of purpose, it will absolutely have an impact. While shareholders may make sacrifices in the short term, they will benefit from the investment in the long run.

Lisa Goller
BrainTrust

Target’s investment in people makes strategic sense because its employees enhance the stores’ positive, personalized experience.

Unlike Amazon, Target has an abundance of physical stores (and frontline staff) for a multisensory experience, immediate purchases and face-to-face service. Unlike Walmart, Target has consistently cheerful employees who deliver attentive service.

Since retail is now all about the experience, Target’s higher wages will attract and retain a higher quality of retail talent for an in-store experience that stands out, especially among discount retailers.

Shep Hyken
BrainTrust

The short answer to this question is: Yes. Investing in people is paramount to the success of a company, especially in a competitive retail world. You can have the best advertising and marketing, and you spend a lot of money to get people into the store. Then they talk to an employee. That’s the moment of truth. That’s where the investment pays off. If the employee isn’t properly hired and trained, which is a big part of the investment, they potentially destroy the confidence and trust in the company. Don’t take that chance. Invest in the people.

Dr. Stephen Needel
BrainTrust

While there is no doubt that improving the quality of the staff will have benefits, I’m not sure this was Target’s biggest problem. A mediocre online experience, stores with empty shelves (I just came from one in Marietta, GA), and often a product assortment that is not consumer-driven are not problems that a higher wage is going to solve.

Anne Howe
BrainTrust

Kudos to Target for focusing on talent. Funny though that for as often as I go to Target, I never have any interaction with anyone other than a cashier. And the cashiers don’t ask if I found everything I was looking for. Never once has any employee in the store asked if they could help me. My observation is that shopper-to-shopper interaction is very high at Target. Perhaps the talent needs to get more engagement training?

Mel Kleiman
BrainTrust

I’ll answer the second question first; Brian Cornell is right on. Just remember “The most important decision any retailer makes is who they allow in the door to take care of the customer.” PS: I am a stock holder.

To answer the first question: When it comes to getting a great return on investment, you just need to remember that a dollar saved is more valuable then a dollar earned and one of the best ways to save dollars is to reduce turnover.

Mohamed Amer
BrainTrust
Mohamed Amer
Independent Board Member, Investor and Startup Advisor
1 year 7 months ago
Absolutely! This is getting like whipsawville: while the same week finds us discussing retail’s future being cashier-less, we also hear from Target’s CEO, Mr. Cornell, that future success depends on investment in people. As I mentioned yesterday, we need to avoid the binary thinking trap. It’s never an either/or future and that is what makes business so interesting and challenging. In the case of Target, and most retailers, the quality of the customer experience and the interactions you have as a customer with their brand is based on the quality and training of the associates. Yes, technology is tightly woven into everything we do today and has become indispensable. However, while properly designed and implemented, technology can boost productivity and enhance the shopping experience, it can rarely do so in a vacuum. If you take this to its logical conclusion, differentiation will be based on how well you balance technology content and human touch given your particular strategy, the markets you’re pursuing, and the customer segments you desire. No matter how I slice it, the… Read more »
Craig Sundstrom
Guest

“… saw its stock price drop 4.45 percent over concerns that the financial investments it is making in its people, stores and digital operations will weigh on profitability.”

Seemingly the sellers don’t understand how an investment works; then again, maybe they object to use of the word “investment” for higher pay. And strictly on semantics I think I would agree with them, but a fetish over proper terminology misses the point: the market has tightened and if you want better people you have to pay for them.
Whether or not Target really has better people, I will let others decide.

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
1 year 7 months ago

Happy employees make for happy customers. Attracting higher caliber employees and paying them well is a smart strategy for retailers that care about customer satisfaction and loyalty.

Enhancing the customer experience is the best way for big box retailers to compete against Amazon and Walmart. While investors may not reward corporations for spending money to make more money, it is a good strategy for long-term success. People go to a store because they want to be helped and if they can’t find it at your store they will go elsewhere. If they didn’t want help they would by the commodity online!

Go Target!

Kenneth Leung
BrainTrust

Investment in people isn’t just higher wages but knowledge, path to promotion etc. Customer experience will improve in the stores when the employees feel empowered, educated and feel they are part of a career path.

davelunn
Guest
1 year 7 months ago

Yes, investments made in employees will provide both short- and long-term benefits for Target. Higher wages will obviously bring in a larger pool of applicants, so Target can be picky with its hires. Plus, by paying better-than-average wages, Target will likely retain its employees for longer periods of time. And any retailer knows that the better employees are treated, the more likely they are to happily and helpfully engage with customers, whether stocking shelves or serving as cashiers.

wpDiscuz
Braintrust
"Retailers are just beginning to explore the concept of making investments in in-store people and yes, I think they will find they reap strong returns."
"The human factor is a huge differentiator — making back-office decisions, restocking shelves, or analyzing data or engaging customers..."
"While there is no doubt that improving the quality of the staff will have benefits, I’m not sure this was Target’s biggest problem."

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