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Target Hikes Its Minimum Wage—Will Walmart Follow?

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Apr. 5 2019, Published 8:31 a.m. ET

Minimum hourly wage increased to $13

On April 4, Target Corporation (TGT) announced that it was raising its minimum wage rate by $1 to $13 per hour starting in June. The move is another step toward its goal of increasing the minimum hourly wage rate to $15 by the end of 2020.

Target’s wage hike is likely to put pressure on Walmart (WMT) as the unemployment rate in the United States continues to be low.

In 2017, Target announced that it would increase its minimum wage rate to $15 per hour by the end of 2020. Retailers are raising their minimum wage rates amid a tight labor market. Last year, Walmart followed Target’s wage hike announcement and increased its minimum wage rate to $11. In comparison, Amazon (AMZN) offers better pay. It hiked its minimum hourly wage in the United States to $15 last year.

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Margins could take a hit

The profit margins of retailers in the United States are under pressure due to their investments in growth measures, including the expansion of their e-commerce platforms, investments in stores and pricing, and supply-chain revamps. Meanwhile, competitive wages amid a tight labor market have further suppressed their margins.

However, higher wages and investments in training and development activities have driven companies’ in-store sales and productivity. Target’s chief human resources officer, Melissa Kremer, stated that raising minimum wages had supported the company’s holiday sales. Target posted strong comparable sales during the holiday season, as we can see in the graph above. Target’s comparable sales increased 5.7% during the November and December period in 2018, indicating a healthy improvement from the previous year.

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