October is right around the corner, and that means holiday shopping season is already gearing up. Target (TGT -5.22%) is launching its first holiday shopping event Oct. 6, and it plans to hire a lot of new employees to get it through the extended holiday season.
The big-box retailer said it'll onboard 100,000 new workers for its stores and fulfillment centers, the same amount it hired at the end of 2021. The aggressive push adds more risk to Target's third- and fourth-quarter results, after profits took a massive hit from stores clearing out stale inventory in the second quarter.
Target won't be caught short staffed
Target's plans to hire 100,000 seasonal workers fly in the face of the messaging conveyed by its biggest rivals. Walmart (WMT -1.35%) announced its plans to hire 40,000 seasonal workers, down from 150,000 last year. Meanwhile, Amazon (AMZN -1.33%) is shuttering warehouses and canceling plans for new ones as it aims to right-size its logistics network.
All the new hires won't be cheap, either. Target raised its minimum wage to between $15 and $24 per hour earlier this year. The tight labor market could push wages higher in some areas. As such, investors should expect to see a bigger impact on operating expenses in the second half of the year.
While management expects the rest of 2022's operating margin to come in below what it produced in the second half of 2021 at 6%, the aggressive hiring creates more uncertainty around that number.
If management's strategy of extending the shopping season and hiring enough staff to ensure shelves remain stocked and its warehouses don't get overwhelmed pays off, it could be a big win for the company. The more it can leverage its big staffing push, the better the margins will be.
The other side of the coin, however, is that it is overstaffed and sales fall short of what management expects. This is what happened to Walmart earlier this year, contributing to a $1.3 billion decline in its first quarter operating income.
The competition doesn't seem as optimistic
Perhaps overhiring last year led Walmart to take on fewer seasonal hires this holiday season. But during the summer Walmart also lowered its full-year guidance. Management pointed to the higher cost of essentials like food driving down sales of general merchandise.
Amazon also made some moves signaling less robust sales expectations. It reported nearly 100,000 fewer employees at the end of June versus the end of March, a reduction of about 6%. It's also becoming more strategic with its fulfillment center capacity instead of just taking whatever space it can get.
Amazon's management expects slowing fulfillment network capacity growth to help it produce improved operating leverage in its business in the second half of the year versus the first half. Still, it's expecting a substantial drop in operating income from 2021 levels.
Moreover, industry analysts don't expect much growth this holiday shopping season. Deloitte sees sales from November through January climbing between 4% and 6% year over year. That compares to 15.1% growth from the prior-year period. Bain & Co. expects inflation-adjusted growth between 1% and 3%.
Target's aggressive push to extend the holiday shopping season and out-staff the competition brings some risk. It could pay off for investors in the retail stock with greater sales and improved operating income. But there's still a lot of pessimism about how much consumers will be willing to spend this fall and winter.
