There's a big reason Target (TGT -1.73%) managed to thrive during the pandemic at a time when so many retailers struggled. Granted, its status as an essential retailer definitely helped matters. But ultimately, it was Target's ability to adapt quickly that gave it an edge while other retailers were shuttering left and right.
Recognizing the need to step up its shipping and delivery game, Target expanded its curbside pickup offering in 2020 to capitalize on the BOPIS (buy online, pick up in store) trend. It also ramped up its same-day delivery offering and worked to improve its shipping times to keep up with competitors like Amazon (AMZN -0.82%).
These days, retailers are facing a whole new set of challenges that revolve around labor shortages. But Target just took a major step to address that issue -- and give itself an edge in the big-box wars.
Image source: Getty Images.
Raising wages to retain and attract staff
The retail industry isn't exactly known for paying generous wages. And against the backdrop of so many workers tendering their resignation in search of better job opportunities, that's a problem.
Of course, a lack of staff could cause serious problems for retailers and impact their bottom line. But Target is solving for that by strategically raising its wages.
In 2020, Target decided to set its minimum wage at $15 an hour, which is well above the federal minimum wage of $7.25. Now, the chain is raising its starting wage for workers in some positions to $24 an hour. That increase will apply to store workers, as well as warehouse and fulfillment center employees.
Recognizing the pivotal role employees play in its success, Target intends to spend an additional $300 million on its workforce in the near term. That investment includes not just higher wages but also expanded access to healthcare benefits for workers beginning in April.
Target isn't the only retailer to lure in workers with the promise of higher wages. In fact, Amazon tried that tactic back in 2018, when it raised its starting wage to $15 an hour.
But the timing of Target's wage hike plan couldn't be better, given how desperate retailers are to staff up these days. And the fact that Target is offering higher wages could also buy the chain some added goodwill -- and potentially serve the secondary purpose of helping it expand its customer base.
A clear edge
Target isn't the only major retailer to thrive in the wake of the pandemic. But now, as many chains struggle with staffing issues, Target is in great shape to power through the labor shortage crisis and come out ahead.
In fact, Target's recent wage hike announcement could give it a major advantage over Walmart, which recently raised wages for some workers to $12 an hour. But that pales in comparison to the $24 an hour Target is now offering up. And while investors might worry that Target may be going overboard on the wage front, the reality is that at this stage of the game, it's a necessary expense.
In fact, real estate investors should be happy to see Target stepping up on the wage front. Shopping centers commonly rely on Target to serve as an anchor tenant. And while the big-box giant is clearly in no near-term danger of having to shutter stores, this strategic move should only solidify its position as a reliable paying tenant -- something retail spaces really need right about now.
