What Home Depot’s billion-dollar pay raise can prove about workers

In its last quarterly earnings report, Home Depot forecast flat sales and lower profits for 2023, partly because consumers aren’t spending as much on home improvement products as they did during the pandemic, a boon period for the sector. Another hit to its bottom line, the company predicted, was the decision to invest $1 billion this year to increase hourly wages for every one of its frontline workers.

Giving pay raises at the same time sales are slumping seems like an incongruous strategy, but Home Depot executives project that it will actually boost the big-box retailer’s industry-leading position. “We plan to continue to capture market share,” CFO Richard McPhail told analysts during the February earnings call. One reason, he said, is “the unique advantage that our orange-blooded associates give us over our competition,” alluding to Home Depot’s signature color and the term for its frontline employees.

While Home Depot made a splash with the billion-dollar pay hike, it comes on the heels of similar moves by other major retailers that also espoused the benefits of investing in a well-paid workforce.

A year ago February, Target set a new starting wage range from $15 to $24 an hour for its so-called team members and expanded access to health care benefits, at a cost of $300 million in 2022. “We know that those investments lead to a more engaged team and that team then builds greater guest trust and loyalty, which in turn continues to power our growth across the company,” said Melissa Kremer, chief human resources officer, last fall when Target was named 12th among Fortune’s 100 best companies to work for.

In January, Walmart announced it was raising the minimum hourly wage for its store employees to $14 from $12 and up to $19 an hour, establishing an average wage of $17.50 an hour. “Retaining talent and establishing career opportunities for our associates remains a central objective to our growth ambitions,” CFO John David Rainey said at an investor meeting in April. “We are confident we can make the investments needed to remain competitive in a tight labor market while also growing our profitability.”

Although it’s difficult to draw a straight line from the cost of labor to sales, profits and market share — and retailers are also making big investments in automation — retaining a loyal and satisfied workforce can be seen as a wise strategy amid an ongoing battle for talent, and even as persistent inflation and interest rate hikes are expected to further moderate what has been robust consumer spending.

Irrespective of Home Depot’s strong track record on Wall Street, Morgan Stanley analyst Simeon Gutman said he was somewhat surprised by the $1-billion outlay. “The investment community largely thought Home Depot was already in prime position in terms of wage rates,” he said, noting a series of pay increases in recent years. And the fact that the company is…