Gap Inc. Wage Increase May Set Retail Trend

Gap Inc

In a press release published by the Wall Street Journal this morning, the clothing outlet Gap Inc. announced in an all-employee call a wage increase, which may set a trend in pay for retail employees across the nation. The full increase to $10 an hour for Gap workers does not go into effect until 2015, but the effect of the announcement on the debate about the right levels of compensation for American workers will show up much sooner.

President Obama praised the decision. The President signed a wage increase for federal employees last week, and he endorsed a bill in Congress which would set a federal minimum wage of $10.10, up from $7.25 per hour, by 2016. The majority of Republican lawmakers do not support the increase.

Pay for hourly workers has been reported on frequently in the last months. Workers at fast-food outlets asking for higher wages protested in many cities across the nation last year and several states are currently having debates about raising minimum wages for their population.

The retail industry in the U.S. represents close to 42 million people, a quarter of the labor market, and the decisions made by the CEOs and CFOs of these companies regarding wages and compensation will have a long lasting effect on jobs and prosperity in the coming years.

The National Retail Federation (NRF) is lobbying against a hike in the minimum wage. They claim the increase would force owners to raise prices, reduce their workforce, or both. Maybe leadership at Gap Inc. has set a trend of ignoring this alarming rhetoric, which seems to come up whenever wage increases for retail workers is discussed.

It is not without some sense of trepidation however, that owners make the decision to raise wages. Retailer profit margins are often relatively narrow. To stay in competition they must balance their total cost of doing business, which includes employee wages, against their total sales to ensure they remain healthy in the marketplace.

In 2013, for example, Gap Inc. had sales of $15.65 billion less costs of $14.51 billion, leaving a net income of approximately $1.2 billion for the year. Thousands of employees getting a larger than 30 percent pay raise (assuming a jump from $7.25 to $10.00) will increase the company’s costs by no small amount, but the Gap has decided to do it anyway.

Reports indicate that other retail stores, including three of the biggest players, Target, Sears, and Walmart, are considering the impact raising wages for employees would have on their bottom line. It seems likely they will also need to balance those considerations against the impact negative public sentiment would have if they decide against distribution of a larger share of profits to working people.

The decision to invest in front-line employees will directly support the business, said CEO Murphy, and “is one that we expect to deliver a return many times over.” A retail store with the forward thinking view that Gap Inc. today made clear it has, may set a trend for increased wages in any industry with an eye to the future. Annual gross income at the retailer has exceed $5 billion for the last five years, in 2013 it was $6.5 billion.

By Brian Ryer

Sources:

Wall Street Journal
ABC News
RetailWire
FOX23 – Albany
BOF – The Business of Fashion
Forbes
CBS Marketplace
National Retail Federation

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