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What Gap didn’t say about its new minimum wage

Gap contends its decision to increase the hourly rate it pays workers wasn’t political, but it sure looked otherwise given the timing of the move against the backdrop of the intensifying national debate over the minimum wage.

Retailers often find themselves at the center of the contentious philosophical debate over the minimum wage and further evidence of that was seen in the reaction to Gap’s decision to pay workers a minimum of $9 an hour this year and $10 a hour next year. The move will affect 65,000 employees, a little less than half of Gap’s global workforce of 135,000.

President Barack Obama seized on the Gap announcement and further politicized the minimum wage issue in a statement released Wednesday.

"In my State of the Union address, I asked more businesses to do what they can to raise their employees' wages," Obama said. "Today, I applaud Gap for announcing that they intend to raise wages for their employees beginning this year. But only action from Congress can make a difference nationwide."

At issue is whether to increase the federal minimum wage from $7.25 to $10.10, a 39% increase, proposed by Obama, throughout the next three years. Arguments for and against the increase are the same as they always have been. Proponents take the view that an increase is the right thing to do and would move hourly workers closer to a living wage that would be good for the economy because the higher wages will result in increased spending. Opponents contend raising the minimum wage will result in lost jobs as employers are forced to cut back hiring to compensate for increased labor costs while leaning on current employees to increase productivity. Gap offered little evidence to support either sides’ view.

“To us, this is not a political issue. Our decision to invest in frontline employees will directly support our business, and is one that we expect to deliver a return many times over,” according to a statement from Gap’s chairman and CEO Glenn Murphy.

What the company didn’t say was how much the move will cost, the impact on profitability in 2014 and 2015 and the potential to reduce turnover. The company also stopped short of disclosing how much the 65,000 workers affected by the change currently earn other than to say the majority earn more than the $7.25 minimum wage. The company is due to report fourth quarter results on Thursday, Feb. 27 and presumably will share with investors what sort of headwind the increased labor cost will have on future profitability.

The other area Gap steered clear of which is closely related to the living wage issue is the mix of part-time and full-time employees. The company doesn’t disclose the mix in its annual report with the Securities and Exchange Commission and that is one of the complaints against the industry in general. Regardless of whether workers are paid $7.25 an hour or the $9 or $10 minimum Gap plans to spend, the issue for many workers, even those who are classified as full-time, is the number of hours they are allowed to work. Retailers are under constant pressure to control variable labor costs and this is especially true in an economic climate with limited sales growth.

In Gap’s case, the size of its workforce is essentially the same today as it was six years ago. Murphy said the company has 135,000 worldwide employees which is 1,000 less than last year and 1,000 more than it had six years ago.

“Over the last five years, retail has changed rapidly, and we've stayed ahead of others by investing in technology,” Murphy said. “And yet, a customer's lasting impression is often shaped by the interactions with the people in our stores. To connect and enhance the in-store and digital experience for our customers even more, we must attract and retain great talent.”

 

 

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