Before bargain-hunters entered stores on Thanksgiving, Target employees were busy inside shipping out online orders. The strategy provides a test for how retailers hope to thwart Amazon by using physical stores as shipping centers on one of the busiest online shopping days of the year.
The discount retailer’s efforts to jazz up its stores and improve its merchandise are already paying off as customers trade up for more expensive stuff.
Since Brian Cornell became CEO last year, the retailer has been looking to better cater to middle-class and upper-middle-class shoppers by borrowing some moves from the department store playbook. It’s put mannequins on the floor to showcase clothes and added beauty sections staffed by associates who give advice.
An even bigger project is to reinvent Target’s dull food assortment, which is expected to be completed next year. That includes more focus on organic and natural food and less on processed food younger shoppers and more affluent consumers are increasingly avoiding.
Target had lost its way during the recession, trying to compete head on with Walmart on price and letting a lot of its merchandise become indistinguishable from rivals. Target may be mass merchandise retailer, like Walmart, but its shoppers are five years younger on average than its rivals, and make approximately 23% more ($68,957) per year, according to new data from Kantar Retail. That means it has to offer something different, whether it be occasional collaborations with top designers like Lilly Pulitzer, or hip cookware or organic baby food.
Macy’s has a similar strategy that includes a plan to make 150 of its nearly 800 stores more upscale.
Since its turnaround started going strong last year, Target’s efforts have seemed to paying off. In-store shopper traffic rose last quarter even as online sales gained 38%. And more importantly for Target, customers are spending more at a time when many retailers including Walmart, Macy’s M -1.26% , and Kohl’s KSS -0.99% have reported mediocre sales.
Target’s performance was “driven by a lower level of promotional activity this year and a trend in which our guests are trading up to higher quality and premium branded items,” Target’s chief merchant, Kathryn Tesija, told Wall Street analysts on Wednesday.
During the quarter, Target’s gross profit margin rate edged up almost one percentage point to 30.4%, largely because it discounted fewer products. What’s happening is that Target is selling fewer items overall but at higher prices. Customers bought 3.6% fewer items per trip, according to the company, but paid 5.1% more.
This month’s jobs report presents a conundrum. Of late, big company after big company after big company has announced pay increases. The economy is growing and employers are adding jobs, even if March produced something of a weather-related blip in the hiring numbers. But in aggregate, wages still aren’t rising. What gives?
It’s definitely a strange trend. In the past few months, a number of businesses have announced pay bumps — a sign that they need to compete to attract and retain employees, and thus a sign that the labor market really is heating up. The trend took hold last year, when basicwear giant Gap Inc. said it would raise its minimum hourly pay. Other firms followed, including Aetna, Ikea, Starbucks, Target, T.J. Maxx, and Walmart. And this week, we also got a big, fat McRaise. McDonald’s said that it would boost hourly employee pay to at least the local minimum wage, plus a dollar. By the end of 2016, the average hourly wage rate should be more than $10, the company said.
But alas, this business trend has not translated into a macroeconomic trend — at least not yet. Today, the government said that average hourly earnings have only climbed a little more than 2 percent over the past year. That’s a paltry figure, and there’s just no sign of sustained wage increases in the monthly report.
It seems that there are a few things going on. First off, the big pay bumps that have been announced, in truth, just are not that big. Take the McRaise. It applies to just 10 percent of the company’s domestic workforce. (That’s because the hike only goes into effect in stores that McDonald’s itself runs. Most of its outlets are operated by franchisees.) And it’s a small raise — just enough to for employees to nab something off the dollar menu every hour or two.
“They announced it on April Fools’ Day, and I really felt like it was a joke,” said Bleu Rainer, who works part-time at a McDonald’s in Tampa. “I was like, ‘For real?’ We want $15 an hour. We want union representation. We’re not playing with them. We want $15.” Getting $9 an hour would not change his ability to pay his rent or keep his lights on, he added. He’d still be scraping by in poverty.
Other companies’ raises have been bigger in scale and scope than the McRaise, to be fair. The pay hike offered by the Gap hit 72 percent of its workforce, according to data pulled together by the National Employment Law Project. Ikea’s hit about half of its employees, and Walmart’s about 40 percent. Walmart’s pay hike should cost the company about $1 billion a year, or 6 percent of its 2014 profits. In contrast, McDonald’s pay hike should only cost it around $100 million a year.
But all of these pay raises have been concentrated in low-wage sectors, muting their effect on the overall economy and helping explain why the headline number is not moving yet. Giving a 2 percent raise to a teenager flipping burgers for $8.25 an hour is a lot cheaper than giving a 2 percent raise to a dental assistant making $20 an hour, after all. And right now, it’s mostly the teenagers flipping burgers that are seeing those small bumps in their pay. As The Wall Street Journal notes, wages have climbed 3.6 percent in the generally low-wage leisure and hospitality industries. They have climbed only 1.9 percent in education and health, where there are millions of middle-class and upper-middle-class jobs.
There’s also a bit of a telescoping going on in the media, I fear. Back in the economic expansions of the 1990s and 2000s, companies rarely felt the need to trumpet the news when they offered their workers a few more quarters and nickels per hour. Now — given the high-profile Fight for $15 campaign and the broader cultural attention paid to inequality — they do. Bizarrely, all of the attention on the plight of low-wage workers might make these raises seem like a bigger deal than they are. “The announcement from McDonald’s — it was PR stunt,” said Kendall Fells, the Fight for $15’s organizing director. “It’s laughable. But the workers have more momentum now than ever.”
That’s the thing. Even if these changes have not shown up in the aggregate numbers yet, they are indicative that companies are competing a little harder to bring in and keep employees. They are a sign that the economy is getting better. They might show that external pressure helps corporations do the right thing. And they do mean that hundreds of thousands of workers should be seeing a little more take-home pay.
At some point, the data should catch up with the headlines.
Black Friday shoppers at Target Charlie Neuman/U-T San Diego/ZUMA
Last year up to 110 million Target customers had their sensitive personal information stolen over the holidays in one of the largest data thefts in retail history. After stolen credit cards began to flood black market websites, Target offered all of its US customers one year of free daily credit monitoring to help them fend off identity theft. But credit experts and Consumer Reports say that this service is misleading victimized customers by providing incomplete monitoring—and advertising comprehensive reports for a fee.
“It’s a misconception to think that you’re getting full credit monitoring,” says John Mackey, founder of Master Credit Solutions, which helps people rebuild their credit. “I live three or four miles from the Target headquarters in Minneapolis, and I want to go over there and tell them that it’s deception that they’re committing. The reports won’t tell you squat.”
Under federal law, Americans who are victims of identity theft are allowed to get afree credit report from the three major credit bureaus: Experian, Equifax, and TransUnion. Target’s program, “ProtectMyID,” promises to go further than that, providing several resources, including giving customers free credit monitoring for one year. Credit monitoring works by notifying consumers after fraudulent activity occurs—for example, if a new credit card has been opened in the victim’s name—so that it can be quickly stopped. It doesn’t alert customers if someone is actually using a stolen credit card, since that information doesn’t show up on a credit report. “Free credit monitoring is like someone running up to you after a car accident and telling you, ‘You just got in a car accident!'” John Ulzheimer, a credit expert at CreditSesame.com, told MarketWatch.
But according to Consumer Reports, Target’s credit monitoring service isn’t even as good as that—since it only checks one bureau, Experian, and this practice doesn’t provide a full picture of a person’s credit. When you buy a house, for example, lenders usually compare credit reports from all three major bureaus, since they get their information from different sources, according to the Federal Trade Commission. Target claims, “You do not need to purchase a credit score or additional reports from Equifax and TransUnion to receive the benefits of credit monitoring.” And Greg Young, a spokesman for Experian, tells Mother Jones, “Single-bureau monitoring provides substantial awareness into whether or not new lines of credit have been opened, or attempted, in the individual’s name.”
The rash of attacks against Target and other top retailers is likely to be the leading edge of a wave of serious cybercrime, as hackers become increasingly skilled at breaching the nation’s antiquated payment systems, experts say.
Nearly two dozen companies have been hacked in cases similar to the Target breach and more almost certainly will fall victim in the months ahead, the FBI recently warned retailers, according to an official who was not authorized to speak publicly. The names of all of the compromised firms have not been revealed, nor is it clear how many shoppers have had their credit card numbers and other personal data stolen.
Banks, retailers and policymakers have been slow to address the growing sophistication of cybercriminals. Only 11 percent of businesses have adopted industry standard security measures, said a recent report by Verizon Business Solutions, and outside experts say even these “best practices” fall short of what’s needed to defeat aggressive hackers lured by the prospect of a multimillion-dollar heist.
“You’re going to see more and more people trying this,” said Nicolas Christin, a security researcher at Carnegie Mellon University. “If you just saw your neighbor win the lottery, even if you weren’t interested in the lottery before, you may go out and buy a ticket.”
Cybercrime cost U.S. companies an average of $11.5 million in 2012, according to a study by the Ponemon Institute, up 26 percent compared with the previous year. The effect on consumers can last for years, as they are left vulnerable to bogus charges and potential identity theft.
Criminals using fake credit cards, made with data stolen from Target, are already being arrested
The FBI has issued a warning to US shops telling them to beef up defences against cyber-thieves.
The agency included its warning in a confidential report to large retailers that was obtained by Reuters.
In particular, said the FBI, shops need to look for the type of malware used to steal millions of credit card details from shoppers at retailer Target.
The FBI said it had seen about 20 cases in the last year where data was stolen using the same type of malicious code.
That code has been inserted on to credit and debit card swiping-machines, cash registers and other point-of-sale (POS) equipment.
“We believe POS malware crime will continue to grow over the near term, despite law enforcement and security firms’ actions to mitigate it,” read the FBI report.
The low cost of the virus code, its wide availability on underground markets and the potential for profit if POS equipment was compromised made it very attractive to thieves, said the agency. One copy of the type of software used to grab data at tills was on sale for only $6,000 (£3,600), said the FBI report.
The report was sent out as more details emerge about the extent of the security breach at US retailing giant Target.
Reports suggest that the attackers who planted malware on Target tills were scooping up card data for 19 days during the busy Christmas season. The thieves are believed to have got away with complete details for 40 million cards and stolen personal data on about 70 million customers.
The attack is believed to have been one of the biggest retail cyber-attacks in history.
Recent arrests suggest the data stolen from Target is already being used to create counterfeit cards. In mid-January two people were arrested at the Texas-Mexico border with 96 fake cards later identified as being from the huge cache stolen from Target.
A cryptographic chip embedded onto a British debit card. America is nearly alone in still relying on magnetic stripes to authenticate purchases.
Christopher Furlong/Getty Images
The credit and debit card data breaches at Target and Neiman Marcus compromised at least 70 million American consumers, and analysts say even more of us are at risk. That’s because the technology we use to swipe for our purchases — magnetic stripes on the backs of cards — isn’t hard for a skilled fraudster to hack.
“It’s totally unprotected and it’s static, so it’s the same data that’s read every single time. It’s just about the worst security that you can put into a payment system,” says Avivah Litan, a security analyst for Gartner, a firm retailers hire to assess their cybersecurity gaps.
Sophisticated cyberthieves got consumer data during the holiday season breaches by injecting a virus into Target’s card payment terminals. From there, the bad guys systematically captured the information found on every card swiped, from Thanksgiving through just before Christmas.
“We’ve seen hacks as big as this before, in fact we’ve seen bigger, but what we haven’t seen before is something this sophisticated and well organized,” Litan says. The data from the cards was turned around and sold on an underground market, where thieves can recreate credit cards using the stolen data and use them to make fraudulent purchases, she says.
Industry leaders know magnetic stripes are outdated and easily exploitable. The rest of the world moved onto a more secure, harder-to-hack payment system based on chip-enabled cards — chip and PIN. Chip-enabled cards are more secure because the data on the chip is hidden behind encryption. So even if criminals intercept what’s on it, they can’t re-use it.
“It’s standardized all over the world and used all over the world, except in the U.S. and perhaps one country in Africa,” Litan says.
“Basically my American credit card is like a second-class citizen here,” Shapiro says. “I can’t use the self-checkout line at the supermarket, I can’t use the automated machine in the subway system or the post office. Some merchants charge me an extra charge just because of my American credit card.”
Shapiro’s new British pal, Ben Thompson, explains how he pays for purchases without swiping — or signing.