In a surprising move, Gap Inc. informed its employees Wednesday that it would set $9 as the minimum hourly rate for its U.S. workforce this year and then establish a minimum of $10 next year.
Gap said this move would ultimately raise pay for 65,000 of its 90,000 U.S. employees, including those at Banana Republic, Old Navy and other stores.
Gap is making this move as many states consider raising their minimum wage, and as Republicans and Democrats debate a bill that includes a proposed increase in the federal minimum wage to $10.10 an hour by 2016.
President Barack Obama has endorsed the increase, and has campaigned for it at stops around the country.
Both sides in the debate received ammunition Tuesday when the Congressional Budget Office released a report estimating that an increase to $10.10 an hour would reduce total employment by about 0.3 percent, or 500,000 workers - although the analysis said the losses could range from zero to 1 million overall.
While Republicans seized on the possible job losses, supporters of the increase pointed to the report’s assessment that such an increase would lift the incomes of more than 16 million people.
Glenn K. Murphy, Gap’s chief executive, said in a letter to the company’s employees, “To us, this is not a political issue. Our decision to invest in front-line employees will directly support our business, and is one that we expect to deliver a return many times over.”
In a statement released Wednesday evening, Obama applauded Gap’s decision and implored Congress to “make a difference nationwide. Right now, there is a bill in front of both the House and the Senate that would boost America’s minimum wage to $10.10 an hour and lift wages for more than 16 million workers - all without requiring a single dollar in new taxes or spending. It’s time to pass that bill and give America a raise.”
Gap did not disclose how it intended to pay for the increases.
In an interview, Murphy said a “reserve-in-store” program instituted about 18 months ago required a skilled, motivated and loyal sales force to help customers who visited the stores to pick up items reserved online and perhaps persuade them to buy matching apparel or shoes.
He said that after the company invested heavily in technology to create this program, “We’re going to need to assure that we have the best talent in our store.”
“We have very good people today but to attract and retain the best talent we have to make sure we invest in them,” he added.
Gap is based in San Francisco, which has a $10.74 citywide minimum wage. California has enacted a law that establishes a minimum wage of $10 an hour by 2016. With its announcement, Gap will help avoid a checkerboard of different wages in different states in which workers with several years’ experience might be earning $8.50 or $9 an hour and wondering why they earn less than new hires in California who will be earning a minimum of $10 an hour.
In explaining the wage increases, Murphy told employees: “We work for a company with a strong set of values, which can be directly linked to our founders, Doris and Don Fisher. They invented specialty apparel retail, but Don also challenged us to live up to our promise to ‘do more than sell clothes.’”
Gap officials said they were not taking an official position on the proposals to raise the federal minimum wage.
David Tovar, Wal-Mart’s vice president for corporate communications, said the company had decided not to take a position on minimum wage proposals so long as they did not target particular employers and had some provisions to “manage the impact,” like a phase-in period. Proposals that depart from that criterion, he said, the company will oppose.
“We have made a decision,” Tovar said of the company’s position. “This is not something we’re debating internally.”
When asked if Wal-Mart had any plans to raise the company’s minimum wage, Tovar said in an email: “Our wages are determined on a market-by-market basis and we continually look at them to remain competitive in order to attract and retain associates.”
Gap’s move comes after a wave of one-day strikes by fast-food workers in dozens of cities demanding raises to $15 an hour. In several cities, most notably Chicago, some retail workers have joined in this movement.
In addition, Wal-Mart has faced pressure from labor unions and their allies. Protests in November at hundreds of the company’s stores called for paying all Wal-Mart employees at least $25,000 a year.
By taking this step, Gap gets a public relations edge on many of its competitors and might entice higher-skilled retail workers away from competitors.
Burt P. Flickinger III, managing director of the Strategic Resource Group, a retailing consulting firm, said Murphy used to run Shoppers Drug Mart, a pharmacy chain in Canada that tended to pay higher wages than its rivals. “By doing that, they got more productivity per person and they really eclipsed the other Canadian drug chains,” he said.
Flickinger added, “In recent years there has been tremendous turnover in retail in the United States and a decline in productivity, particularly with workers paid the minimum wage or a dollar higher.” He said that by paying $10 an hour, “Gap will have higher retention, higher productivity, higher shopper satisfaction and will continue to increase its sales.”
Like many retailers, Gap reported a lackluster holiday season, posting only 2 percent net sales growth for November and December, over the period the previous year.
But plenty of other retailers fared worse. In the teenage space, comparable sales at Abercrombie & Fitch were down 6 percent during the holiday season. And at Sears, sales at its U.S. stores were down 9.2 percent from the previous year.
In a statement last month, Murphy called Gap’s holiday performance “solid overall.”
Stuart Appelbaum, president of the Retail, Wholesale and Department Store Union, had limited praise for Gap’s wage increases.
“I think that what they’re doing is a step in the right direction,” he said. “It’s good for their business, it promotes employee loyalty and it will reduce employee turnover, but it’s not enough. The biggest issue facing retail workers nowadays is being able to work enough hours to earn a decent living.”
He said that when his union sought to organize retail workers, the biggest complaint was the continuously changing part-time hours.
“What would really help reduce turnover at Gap and other companies is to give these workers full-time jobs and regular schedules that don’t change week to week,” Appelbaum said.