Modernizing tests Target’s short-term profits

Retailer ups its game to compete with Amazon

NEW YORK —Targetisincreasing the minimum hourly pay to $12 starting this spring, the second increase in a matter of months, while accelerating its reinvention plan to make the discounter more competitive in the age of Amazon.

The discounter’s moves, announced at its annual investor meeting in Minneapolis, where the company is based, come as its ambitiousplantomakeitselfoveris driving more people to its stores and itswebsite.butthecostofsucha massiveoverhaul,alongwithitspay increases, squeezed its fourth-quarter profits, and it took some shine off overall strong quarterly sales. The company also offered a muted profit outlook.

Last fall, Target increased its hourly wage to $11 from $10. Brian Cornell, CEO of Target, told analysts Tuesdaythecompanysawabetter applicant pool and a 60 percent spike in the number of applicants in the days after the announcement. Cornell reiterated Tuesday its promise to increase the minimum pay to $15bytheendof2020.

“2017 was a year of significant progress,” Cornell said. “2018 is all about acceleration.”

As it races to modernize, Target’s profit margins are under significant pressure. The bottom lines of traditional retailers are getting bruised trying to hold Amazon.com at bay. Late last month, Walmart reported weak fourth-quarter profits as it stumbled with e-commerce sales during the crucial holiday season.

Some industry analysts seemed exasperated with the fickleness of Wall Street in what they believe is a turnaround story.

“While we understand the concern over increasing costs, we are critical of voices that see this as a weakness,” wrote Neil Saunders, managing director of Globaldata. “We take the contrary view: If it is to grow, Target needs to invest — including in customer service, which affects wages. The alternative, which is to restrict or throttle investment, may deliver more profit in the short term, but it will be to the detriment of long-term performance.”

But traditional retailers face a moving target in Amazon.com.

Amazonhascreatedfierceloyalty among shoppers who spend $99 for a membership that comes with free shipping, as well as streaming movies and music. Its acquisition of Whole Foods Market last year has raised the stakes for Target and Walmart, which also sell groceries. Amazon just introduced two-hour Whole Foods delivery for Prime members.

Target pledged last year to invest more than $7 billion in modernization efforts over the next three years. That includes remodeling old stores, opening small locations in cities and college towns and faster online delivery. Late last year, the company said it was accelerating plans to remodel more than half of its 1,800 stores by 2020.

Target earned $1.1 billion, or

$2.02 per share, in the fourth quarter, compared with $817 million, or $1.45 per share, a year earlier.

Revenue rose 10 percent to

$22.77 billion, edging out expectations for $22.46 billion.