Walmart, Target, Kroger, and more major retailers go head-to-head in an escalating 'labor hoarding' war over hourly employees

The US job market still has two openings per unemployed worker, so retailers are spending big to keep the ones they have and win new hires over.

• As companies of all stripes tighten their budgets, retailers are still spending big on hourly workers.
• Big hourly wage increases of the past three years are here to stay, and more are in the works.
• Kroger is the latest to join other major brands like Walmart and Target in the "labor hoarding" war.

There's a quiet war being waged among America's largest retailers, and the winner might be the previously under-appreciated hourly worker.

Slower sales growth, rising interest rates, and increased uncertainty are compelling companies of all stripes to tighten their operations and hunt for cost savings.

Tech employers have shed more than 120,000 workers this year alone – per a count maintained by Layoffs.fyi – in order to boost profitability and satisfy investors, but the word coming out of retail C-suites this past earning season paints a strikingly different picture.

Retail executives are saying that the substantial investment in their front-line workforce of recent years is here to stay, and that any cost savings will have to be found elsewhere. Many are even doubling down with billions of dollars in commitments to further improve compensation, extending the ongoing trend of "labor hoarding" in the industry.

Labor hoarding is when an employer keeps workers they might otherwise cut in a downturn, since hiring and training replacements could lead to missed opportunity or market share when things start to improve.

And that's exactly what's happening here.

Supermarket giant Kroger announced Thursday it would spend $770 million on raising wages in 2023 after having previously spent $1.9 billion on hikes since 2018. CEO Rodney Mullen pointed out that the company's average hourly rate is now more than $18 following a 6% increase in 2022.

Costco, which came into the pandemic era already paying industry-leading wages, delivered three off-cycle wage increases in the past 15 months, CFO Richard Galanti said during that company's earnings call, also on Thursday. 

"Competitive compensation continues to be table stakes," Best Buy CEO Corrie Barry said Thursday, adding that the electronics giant has raised hourly pay roughly 25% over the past three years. She too gave no suggestion that any of those costs would be rolled back as demand falls for expensive TVs and other high-tech products.

Indeed, Barry spoke about the key role front-line teams play in the success of the company.

"Sometimes I want very rapid fulfillment of my product — I want to pick up in store and have the confidence of grabbing that product. Sometimes I want a deeper, more immersive experience," she said of the brand's shoppers. "It's why we are investing more in our front line associates who are the ones who are right there, meeting the customer in the moment."

These companies have plenty of incentive to hoard all the labor they can, as the battle over labor translates directly to the larger war for market share.

"Customers also decide where to shop based on the freshness of product and the friendliness of associates. And that's part of the overall value equation." Kroger's Mullen said. "I really think it's important for you to look at all those together."

Kroger, Costco, and Best Buy join a list that previously included Walmart, Target, Home Depot, and Lowe's, who have expressed similar sentiments this earnings season.

In January Walmart announced it would increase its minimum wage from $12 to $14 per hour, bringing the US average hourly wage up to $17.50.

Then in February, Home Depot said it will spend $1 billion to increase wages for hourly workers, bringing its starting wage to at least $15 an hour nationwide. The company said it would pay commensurate raises to current employees.

Lowe's followed this week, reporting that employee compensation increased by $3 billion since 2018, and would grow by another $1 billion over the next three years.

And while Target did not announce a pay hike, the company said cuts to "the best team in retail" were off limits as the company hunts for $2 billion to $3 billion in operations cost savings over the next several years.

With two job openings per unemployed worker, staffing the front lines has become a zero-sum game for retailers who say they've learned hard lessons about how sales suffer when stores are short-handed.

To be sure, the pay is still comparatively low, the work often physically demanding, and the hours inconsistent, but these developments reflect a major change in the way retail employers think about their workforces.

It's not yet clear which company will get the edge in this battle, but it's workers who are poised to win in any case.