Walmart Wage Hike Seen Pressuring Target, Fast-Food

Wal-Mart Announces Wage Increases
Bob Chamberlin/Los Angeles Times via Getty Images

By Nathan Layne

Walmart Stores' (WMT) wage hike will likely trigger a rethink on pay across the retail and fast-food sectors, with Target (TGT) one of the low-wage employers facing pressure to follow suit and pay workers more.

Walmart announced Thursday it would lift its minimum U.S. wage to $9 an hour this year and $10 in 2016, raising the ante in a tightening labor market where low-skilled workers easily move between retailers and fast-food chains.

Labor and shareholder activists will likely use the news to ratchet up pressure on companies which have so far faced less scrutiny than Walmart, the largest private U.S. employer with a workforce of 1.3 million.

%VIRTUAL-pullquote-This is the largest retailer out there so I think others are going to have to follow.%"This is the largest retailer out there so I think others are going to have to follow," said Brian Yarbrough, analyst at Edward Jones, naming Target and Staples (SPLS) among other national retailers that may look to revise their pay scales. "All the restaurants are going to be under pressure as well."

When Gap (GPS) a year ago set its minimum wage at $9 an hour and pledged to go to $10 in 2015, many workers at Walmart sought to switch and secure employment at the apparel retailer, according to Burt Flickinger, managing director of Strategic Resource Group, a retail industry consultancy.

Now, Walmart's move should help it reduce turnover and will likely put the most direct pressure on Target, given that their pay scales for entry-level positions are generally close and there is broad overlap in product lines.

"It's absolutely Target," Flickinger said when asked what rival would likely need to take action to retain staff.

Target spokeswoman Molly Snyder said the company was "committed to offering market competitive wages that can help attract and retain great talent." She said Target pays above the federal minimum wage of $7.25 at all of its stores, but does not disclose its average rate.

Walmart said the hikes would lift the average hourly wage this year for full-time employees to $13 from $12.85, while raising the average for part-time staff to $10 from $9.48. Those rates could go higher in 2016.

Not Just Wages

Data from employer review site Glassdoor based on at least 75 responses shows that Target, Walmart and Staples are roughly paying the same hourly rate, with cashiers and sales associates making around $9 an hour. A cashier at McDonald's (MCD), by comparison, was averaging $8.44, the data shows.

Staples and McDonald's didn't immediately respond to requests for comment.

It's not just wages. Walmart also said it planned to make the scheduling of hours more predictable, taking a step towards addressing an issue that has long been a source of worker frustration.

Labor groups and institutional investors have long targeted Walmart on wages and now appear set to widen their scope.

David Schilling, senior program director for human rights at the Interfaith Center on Corporate Responsibility, said investors would use the Walmart wage hike as leverage when negotiating changes at other firms.

"It's not just the retail sector. It could be fast food, restaurant workers," said Schilling. When it's "a big player like Walmart the ripples go forward."

-With additional reporting by Nandita Bose.