(Bloomberg) — Wal-Mart Stores Inc.'s landmark decision to boost wages for half a million employees will increase pressure on rival retailers such as Target Corp. to follow suit as the labor market tightens and worker pay climbs nationwide.
The world's largest retailer said Thursday that it would begin paying all of its U.S. hourly workers at least $9 an hour by April and $10 an hour by next February. The plan will result in raises for about 500,000 workers in the first half of the current fiscal year and cost about $1 billion, the Bentonville, Arkansas-based company said in a statement.
Wal-Mart, the nation's largest private employer, is trying to reduce turnover among its 1.3 million U.S. workers, which would in turn cut training costs and improve service at its 4,400 domestic stores. With the unemployment rate dropping and jobs more widely available, Wal-Mart's move may ripple through the retail industry, including at Target.
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"Target will feel the pressure to respond," said Burt Flickinger, managing director at Strategic Resource Group in New York. "It's a competitive market for workers."
Target already pays more than the federal minimum wage at all of its stores, Molly Snyder, a spokeswoman for the Minneapolis-based company, said in an e-mailed statement. She declined to provide more specific details on its compensation and benefits programs.
"We remain committed to offering market competitive wages that can help attract and retain great talent," Snyder said. "As a leading employer, we will continue to work to balance the needs of working Americans while maintaining a healthy business environment conducive to job creation."
Labor market
Wal-Mart's raises — which at $9 an hour would be $1.75 more than the federal minimum wage — come as the nation's jobless rate has dropped a full percentage point in the past year, to 5.7 percent in January, close to the level that Federal Reserve policy makers consider full employment.
Job openings increased to more than 5 million in December from less than 4 million at the beginning of 2014. More employment choices and fewer people out of work means employers are under pressure to improve wages and benefits or face higher turnover as people look elsewhere for better jobs.
Starbucks Corp., another major employer, said it already pays workers more than the minimum wage. Still, it declined to give details on its compensation.
'Looking internally'
"We're not looking at what other companies are doing in terms of wage," said Laurel Harper, a spokeswoman for the Seattle-based cafe chain. "We're really looking internally for ways to invest in our partners."
Wal-Mart also may be seeking to blunt some of the criticism of its labor practices. Workers have staged high-profile protests on Black Friday, and the company was ridiculed following a report that a store in Canton, Ohio, was holding a food drive that asked employees to donate items to fellow associates.
Cadine Nicholson, a 71-year-old customer in Birmingham, Michigan, said she's currently embarrassed to admit she patronizes Wal-Mart because of its negative image among workers.
"Most of my friends think it's terrible to shop here, so I don't even tell them I shop here," Nicholson said Thursday. "I shop here under the radar since we're all union members."
Anthony Rodriguez, a 26-year-old bike assembler at the Wal- Mart store in Rosemead, California, said the raise is "great news" even though his state has a $9 minimum wage and he already earns $9.40 an hour.
'Great beginning'
"It's a great beginning for Wal-Mart to open up and say we need to give them more pay," Rodriguez, who supports his fiancee and 2-year-old son, said in an interview. "But workers still are not getting full-time hours, and it's hard to support your family or even get a place of your own" on Wal-Mart wages.
Rodriguez is a member of the union-backed group OUR Walmart, which praised Thursday's announcement but said the retailer should go further by boosting pay to $15 an hour and providing full-time, consistent hours.
Wal-Mart said the pay bump and changes to the company's hiring, training and scheduling programs will cost about $1 billion the current fiscal year. That would be about 0.2 percent of the $497 billion in sales analysts project Wal-Mart will generate this year.
'Comprehensive approach'
"These changes will give our U.S. associates the opportunity to earn higher pay and advance in their careers," Chief Executive Officer Doug McMillon said in the statement. "We're pursuing a comprehensive approach that is sustainable over the long term."
Wal-Mart cited those costs of the move, as well as currency fluctuations, in its profit forecast, which trailed analysts' estimates. Earnings this year will be $4.70 to $5.05 a share. Analysts estimated $5.19, on average. The retailer now expects sales growth of 1 percent to 2 percent this year, down from a previous forecast of as much as 4 percent.
Wal-Mart was little changed at $83.49 at 10:17 a.m. in New York. Target fell 0.4 percent to $76.38.
Profit in the quarter through Jan. 31 rose rose to $1.61 a share, excluding some items. Analysts had predicted $1.54 on average, according to data compiled by Bloomberg. Wal-Mart U.S. comparable-store sales — a closely watched benchmark — increased 1.5 percent.
McMillon, who took over as CEO a year ago, has added more fresh produce to U.S. stores, an effort that's proving popular with shoppers. Falling unemployment and the plunge in fuel prices also are putting more money in consumers' pockets.
"The precipitous drop in gas prices should translate into consumer spending as we progress throughout 2015," Charles Grom, an analyst at Sterne, Agee & Leach Inc., said in a report before Wal-Mart's earnings were released.
With assistance from Alexandra Mondalek in Southfield, Michigan and Peter Gosselin in Washington.
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