Off Target: Response to living wage ordinance

Today Target Corp. announced that they're backing out of plans to build a Target store in Chicago as a result of City Council passing the living wage ordinance. They didn't come to this decision because the ordinance would make the difference between a profitable and an unprofitable store. It's a gambit. By pulling the plug on the store, they give up a little revenue growth and maybe a teeny tiny slice of market share in the short run. But if they can get just two aldermen to change their minds, making the measure vulnerable to the mayor's veto, it will be worth the cost.

Some math... Target Corporation has approximately 300,000 employees and 1500 stores -- about 200 employees per store, but not all work a full 40 hour week. I imagine that a typical store employs around 5000 worker-hours of labor per week. The ordinance requires total compensation of $13/hr by 2010, but in today's dollars, that's just $11.50 (assuming roughly 3% annual inflation), or $5/hr above Illinois' minimum wage. If all of the 5000 weekly worker hours are paid at minimum wage (worst case), the differential would be $25,000 per store per week on the high end. Because some workers already earn more than $6.50/hr, the differential would probably be more in the $15,000 per week range. If all 1500 stores were subject to similar regulation, it would cost Target a little over $1 billion per year, or about 2% of revenues. This would be upsetting to the relatively small number of major shareholders. But it would make a huge impact on the lives of many of its 300,000 employees.