Can Target Afford a $15 Minimum Wage?

Print Email

Target Corp. (NYSE: TGT) is setting a new precedent among most major retailers, and thousands of Target employees are going to see a nice addition on their checks. The company announced early on Monday that it would be raising its minimum wage to $11 per hour, starting next month. However this pay increase does raise a few interesting questions.

It’s worth pointing out that the $11 per hour minimum wage isn’t Target’s endgame. The retailer plans to pump up its minimum wage to $15 per hour by the end of 2020, which would be a first among the major retailers.

What also makes this raise so important is that it’s the second time that Target employees have gotten a raise this year — previously raised in May to $10 from $9 per hour — and that this increase in pay is outpacing industry leader Walmart Stores Inc. (NYSE: WMT).

Although this plan looks great on the surface, can Target sustain it? So far this year Target is one of the worst performing major retailers, with its stock down about 20% year to date. Practically all other competitors within its industry are posting a gain this year so far, including Walmart, Costco and Dollar General.

Stock performance is one thing, but the firm might also face some problems on the books. Target already has modest margins, and with over 300,000 (closer to 323,000) full-time employees on the payroll, this could really add up.

In its most recent earnings report, Target noted its gross margin at 30.5%, which could suffer with mounting labor costs.

Brian Cornell, chief executive and board chair, commented:

We’ve always offered market-competitive wages to our team members. With this latest commitment, we’ll be providing even more meaningful pay, as well as the tools, training and support our team needs to build their skills, develop professionally and offer the service and expertise that set Target apart.

Shares of Target were last seen at $59.05, with a consensus analyst price target of $59.28 and a 52-week range of $48.56 to $79.33.

Walmart traded at $80.05. The stock has a 52-week range of $65.28 to $81.99 and a consensus price target of $82.40.