Consumer

Sarah Halzack is a Bloomberg Gadfly columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

Target Corp. is betting that the path to becoming a healthier company is through fatter paychecks.

The big-box retailer said Monday it is set to raise its minimum hourly wage to $11 in October. By the end of 2020, it plans to bump its wage floor even higher, to $15 per hour. The retailer did not say exactly how many of its 323,000 employees would be affected by the change in policy. It also did not specify how much the pay raise would add to its expenses, according to Bloomberg News.

But even without those details, it seems safe to say that Target is making a smart play by increasing its base wage.

For one, the labor market has tightened in recent years. Hiring and retaining talent on the cheap isn't as easy as it was during the dark days of the recession and its aftermath.

Back to Work
As the unemployment rate has fallen, retailers have to fight harder to find and keep talent
Source: Bloomberg, Bureau of Labor Statistics

And while it is true that store closures among major chains easily outstrip store openings right now, there are still plenty of chains looking to staff up.

Help Wanted
Despite the gloom in the retail sector, these major chains plan to open at least 100 new locations this year
Source: Fung Global Retail and Technology
Note: Aldi's planned expansion will be completed in 2018

If Target is to attract and hang onto employees against that backdrop, it's smart to try to make itself into a more desirable workplace. If a worker is weighing whether to put in an application at the nearest Dollar General Corp. store or at Target, Target wants to make that an easy call.

Plus, Target paying workers more could have a positive effect on business -- and the retailer needs all the help it can get right now. There were signs in Target's latest quarterly earnings report that it might be turning a corner, but the fact remains it has been in something of a slump lately.

Getting Its Groove Back, Maybe
Target posted a comparable sales increase after four straight quarters of decline
Source: Bloomberg

It has already made some smart moves to attack its problems, including investing in hip private-label brands and slashing prices to be more competitive with Wal-Mart Stores Inc. and Amazon.com Inc.

Now, investing in its workforce could help build on that progress. We have seen this movie before: Walmart raised its minimum wage back in 2015, and since then, it has had cleaner stores and better-stocked shelves. It also has improved its scores on customer-service surveys.  That surely has contributed to the retailing giant's recent streak of growth in traffic and same-store sales.

Target could reap similar operational benefits from increasing pay. Lower worker turnover means spending less on training new hires. And better customer service and in-store experience could help Target stand out in a fiercely competitive environment.

Target had already been investing in service with programs such as Beauty Concierge, which puts dedicated workers in the makeup and hair-care aisles to answer questions and help shoppers select products. Offering better pay could help it nab experts for these and other roles where specialized knowledge makes a difference. (Look no further than Best Buy Co. Inc.'s turnaround to see how much service can matter in selling electronics, for example.)

It helps that Target will probably get a flurry of upbeat headlines this week about the wage hike -- a good message to have percolating as it is hustling to hire 100,00 temporary workers for the holiday rush. And at a moment when many consumers want to feel like they're handing over their money to a good corporate citizen, this might give the masses a feel-good vibe about shopping at Target.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Sarah Halzack in Washington at shalzack@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net