TARGET'S OFF-TARGET AND RISKY WORKER-BENEFIT CHANGES

David Merrefield

Target Corp. is making a risky move. It has increased the amount its workers must contribute to their health care coverage, and is considering further moves that will transfer more of the financial burden of such care to workers.

It's not too surprising - nor lacking in abundant precedent - that a company would seek to lower its cost of doing business. Indeed, Target's approach, which gives workers a personal stake in the cost of health care, may work not only to Target's benefit, but provide incentive to lower systemic costs. See Page 6.

At the same time, though, Target is uniquely positioned to reap a big downside image effect owing to the changes. (Target's benefit changes were initially reported in the Minneapolis Star-Tribune.)

Let's take a closer look at three big-box retailers in the food retailing business to see how image influences their business. The three are Costco, Target and Wal-Mart, listed in descending order of positive image.

Costco's image is that of proficient buyer of the type of merchandise its relatively affluent shoppers want to have. It's so good at tuning the mix that most shoppers probably think it has more stockkeeping units than does a conventional supermarket. As for worker treatment, Costco's image is positive. Many of its shoppers perceive that it provides generous benefits and wages to its employees. The net effect of Costco's image causes its shoppers to feel enlightened, clever and prosperous.

Target too has a favorable image, one that positions it as a fashion-forward, albeit low-price, purveyor. That image has been obtained by means of charming advertising that conflates utilitarian household goods with popular and upmarket trends. Insofar as its image concerning treatment of its workers goes, Target is in neutral territory - little is known by shoppers about it; few inquire. That's good for Target since its benefits aren't much better than those of other big-box retailers, and not as good as some. At the moment, then, Target's image encourages its patrons to consider themselves to be empowered, smart and thrifty in a good way.

At Wal-Mart, much is changing, possibly for the good, concerning its image. But traditionally, the discounter has focused on little more than low prices, assuming the power of that message would swamp all other considerations. Not so, since Wal-Mart gradually gained the reputation of offering its workers paltry wages and benefits to the point that a small but noticeable proportion of shoppers simply refuse - on principle - to do business with the discounter. The net image effect, then, causes some Wal-Mart shoppers to feel exploitative, drab and impecunious.

Image produces results beyond sales. For instance, in two cities that have strident labor movements - Chicago and New York - Costco and Target have encountered little resistance and have stores within city limits, not to mention in nearby suburbs. Wal-Mart, conversely, hasn't been able to enter New York. It has had just limited success in Chicago.

Clearly, Target is running an image risk in downgrading its benefit plan. The risk will grow as publicity increases concerning current downgrades, and will grow more if there are further cuts to come. Target may no long-er benefit from the shoppers' benign ignorance of its benefit policies, and runs the risk of being put into the same category as Wal-Mart.