Dive Brief:

• Target has raised its minimum starting wage to $10 per hour and has raised the pay of workers already earning that minimum, sources told Reuters. 

• Several retailers announced new starting pay policies last year after Wal-Mart raised its minimum, but Target chose not to announce its reported raise to $9 per hour last March, opting to let employees know through store managers and internal memos. 

• The recent raise could dent Target’s earnings as it continues to invest in tech and store upgrades.

Dive Insight:

Target, and all retailers, are currently in the spotlight as attention is drawn to a surging political movement to raise the federal minimum wage to $15 per hour. But wage hikes like this could balloon a national chain’s labor costs, which is already more than half of a typical retailer’s general and administrative expenses, according to Bain & Co. 

Retailers like Target and Wal-Mart have spent millions on tech improvements in the past year, which haven’t always translated to good results. Employees, meanwhile, may be a retailer’s most important investments.

“I would say that employees are not your greatest cost,” Brett Wickard, founder and president of “lean retail” software solutions firm FieldStack, told Retail Dive. “The right employees are your greatest asset and absolutely an investment in your organization.”

In fact, research shows that retailers that treat their employees as an investment, which requires not just good wages and benefits but also good training, scheduling policies, and adequate tools for the job, often outperform rivals despite their higher labor costs, according to researchers, including Massachusetts Institute of Technology retail expert Zeynep Ton.

"I have studied retail operations for more than 10 years and have found that the presumed trade-off between investment in employees and low prices can be broken," Ton wrote in the Harvard Business Review about her work. "Highly successful retail chains... not only invest heavily in store employees but also have the lowest prices in their industries, solid financial performance, and better customer service than their competitors. They have demonstrated that, even in the lowest-price segment of retail, bad jobs are not a cost-driven necessity but a choice. And they have proven that the key to breaking the trade-off is a combination of investment in the workforce and operational practices that benefit employees, customers, and the company.” 

Reuters reports that Target has attempted to tamp down the negative effect of its pay raise last year by cutting hours, which, along with the $15-per-hour minimum wage, is a rallying cry for workers who say they need to make a living.

The truth is that Target and other businesses will have no choice but to keep wages up and improve working conditions if they hope to compete for talent. Some areas, including most recently the entire states of California and New York, are instituting $15-per-hour minimums, while still others are cracking down on “on-call” scheduling practices.

In fact, Costco last month announced that it would increase its starting pay by $1.50 to $13, the first such raise in nine years, in addition to the annual raises it institutes at the higher end of its pay scale.