Experts think Target will follow Wal-Mart's lead on raises

Target Corp. will have to raise its minimum pay now that Wal-Mart Stores Inc. has announced plans to up employees' wages, two retail observers predicted Friday.

"It's not that Wal-Mart suddenly became benevolent," said Russell Price, a senior economist at Ameriprise Financial Inc. "Wages are starting to percolate. To hang on to good employees, this is something they had to do. Target will, too."

Burt Flickinger, managing director of the consumer retail consulting firm Strategic Resource Group, called the economic and political pressure on Target to increase pay "unprecedented."

Wal-Mart on Thursday said it would increase pay for a half-million employees to at least $9 an hour by April and to $10 by February 2016. Target did not respond earlier when Gap Inc., one of its major competitors, announced plans to raise pay.

But that was because it was still on track with an even bigger competitor, Flickinger said.

"Target has been paying essentially the same entry-level wage rates as Wal-Mart," he explained.

If Target's pay scale slips below Wal-Mart, Price and Flickinger said, the turnover in personnel could affect productivity and customer satisfaction.

The prospect of escalating pay comes as Target absorbs huge losses from its decision last month to close its Canada stores. It expects to report $5.4 billion in pretax losses when it announces fourth-quarter earnings next week and another $275 million in losses next quarter associated with the move. It also expects to spend up to $600 million to shutter its Canadian operation.

Target's reputation also took a shot when Target Canada sought bankruptcy protection, leaving vendors unable to collect billions of dollars in unpaid bills, Flickinger said.

Falling further down the list of low-wage payers could injure the Target brand even more, he noted. Generally, Flickinger said, Target's pay and benefits run significantly lower than the Kroger grocery chain or discount giant Costco. A tightening low-wage labor pool could eventually be disruptive. Turnover means more hiring and training costs, as well as a learning curve. New workers, who don't know the system, are not as productive as veteran workers, Flickinger pointed out.

Price said the tight labor market for low-wage jobs is "going to be pervasive, not just in the retail industry." He expects the crunch to last "for the next several years."

Raising the minimum wage has been a hot political issue in recent years with some members of Congress, especially Rep. Keith Ellison of Minneapolis, arguing relentlessly to up the minimum wage from its current $7.25 per hour and to guarantee livable wages to federal contractors as a way to spur economic growth.

"The political element of this is indispensable," Ellison said.

The congressman has walked picket lines protesting what he considered Wal-Mart's poor pay and working conditions. But Friday he offered praise for a company that often ranks at the bottom of surveys.

"I want to commend Wal-Mart," Ellison said. "Wal-Mart is ahead of the federal government. There is a recognition that we can't get by in a two-tier economy."

Ellison said he and others pushing higher wages will use Wal-Mart's action as a way to compel more retailers to act. That includes Target, which is headquartered in his congressional district.

"Somebody is going to take the place at the bottom of the heap," Ellison said. "Does Target want to be that company? I hope not."