This post first appeared on Harvard Business Review Blog Network
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.
They don’t realize how much they lose this way. Retail stores are complex operating environments. A Gap store can have thousands of products, most of them in many sizes, and there are different places where they might be found—not only the shelves where they officially belong, but fitting rooms, storage areas, and special promotional displays, not to mention random places where customers might have left them. Customers come in with different wishes and need different amounts of help. When companies try to keep such a complex environment running with employees who are unmotivated, poorly trained, or overworked because they are too few in number, the result is poor execution. Products are in the wrong place or have the wrong price. Data are inaccurate. Promotions are advertised but not carried out. Employees can’t answer customers’ questions—they may not know the answers or they may not have time.
Pervasive problems like these reduce sales, reduce employee productivity, and increase costs. And, as Borders and others have found out, they can make it impossible for a company to seize a strategic business opportunity.
Gap’s decision to pay its employees more is a step in the right direction, but only a step. It allows the chain to improve store execution and deliver great performance, but it won’t make those happen all by itself. If Gap really wants to deliver excellence, it will need to complement its increased investment in employees with smart operational choices that ensure that employees are as productive as they can be and that they can play a bigger role in driving sales and reducing costs.
I know this is possible because, as I did the research for my book The Good Jobs Strategy, I found a set of companies already doing it. Whatever it does for the income gap in general, offering good jobs to employees – while delivering low prices and great service to their customers and excellent returns to their investors – could turn out great for Gap.