In the wake of its Q4 earnings report, Target revealed that it is making yet another major investment into its workforce. The company plans to raise starting hourly wages for its employees from $11 to $12 later this spring, and it expects to reach a $15 starting hourly wage by 2020. This comes only six months after Target initially raised its minimum wage to $11 per hour.
In an interview on the CNBC program Power Lunch, Target CEO Brian Cornell said that he wants the big box retailer to “be an employer of choice” for prospective workers.
“I think the biggest investment we have made over the last year and the most important one has been with our team, and our team is ready for the challenge,” said Cornell. “We’ve invested in training and development. We’ve brought in a new operating model to our stores so that we can provide great visual merchandising and a great customer experience, so we can meet the needs of the guest who shops in our store one day, and now is driving up in the parking lot and we’re putting that package right in their trunk.”
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In February 2017, Target said it would reinvest more than $7 billion into the company through 2020, including 1,000 store renovations. The retailer plans $3 billion of capital expenditure this year to support those investments, remodel stores and strengthen online operations to stay competitive.
The massive investments in employees, store transformations and the supply chain hamper Target in the short term. Quarterly gross margins came in at 26.2%, Target’s lowest Q4 gross margin in 20 years. But Cornell indicated at an investor meeting that the retailer expects margins to stabilize in 2018.
Other indicators were positive: overall sales increased 10% to $22.8 billion, and comparable sales rose 3.6%. Approximately 50% of Target’s online orders during Q4 were fulfilled by a store, arguably a major factor driving the 29% e-Commerce sales growth. The company hit its fourth straight year of annual e-Commerce sales growth, with a 25% revenue increase.
COO John Mulligan informed analysts in the meeting that it was cheaper to ship from a store than from a dedicated fulfillment center, making it more cost-efficient to retool the stores rather than build new distribution centers.
