Why raising retail pay is good for the Gap — Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

MIT Sloan Adjunct Associate Professor Zeynep Ton

From Harvard Business Review

Gap announced last week that it would increase its hourly minimum wage to $9 this year and $10 next year. Naturally, President Obama applauded the decision, which was in line with his own push to raise the minimum wage. But what Gap is after is not greater fairness or less income inequality. According to the chain’s CEO, Glenn Murphy, the reason for this move is that Gap implemented a“reserve-in-store” program 18 months ago, meaning that customers can order a product online and then pick it up at a particular store. Gap realizes that this program won’t work without skilled, motivated, and loyal employees.

This is hardly a surprise to me. Remember Borders bookstores? Almost 15 years ago, I studied Borders as it was trying to integrate its online store with its physical stores. Borders had great technology to tell online customers which book was available at which store. But there was a fatal hitch: the inventory data was not reliable. The system would tell a customer a book was in the store, but no one could find it. This happened 18% of the time! That’s way too many customers to let down and, in fact, Borders had to give up on the idea. Eventually, it went out of business.

Why were so many products not where they belonged? I found that stores that had fewer employees, less training, and more turnover had more of this problem. By going cheap on labor expenses, Borders made it hard to act on a strategic opportunity.

Borders is hardly alone in its lack of investment in employees and in the resulting operational problems. Most retailers follow what I call a bad jobs strategy. They see their employees as a cost to be minimized and invest very little in them. They pay poverty-level wages and offer unpredictable schedules that make it hard to hold a second job. They also design jobs in a way that makes it hard to do a good job; for example, to keep inventory data really accurate.

Read the full post at the Harvard Business Review.

Zeynep Ton is an Adjunct Associate Professor of Operations Management at the MIT Sloan School of Management.

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