Why the Gap thinks a higher minimum wage is good for business

Gap made waves back in February when it announced it would raise its minimum hourly wage to $10 over the course of two years. This week, the store is starting that process, instituting its first minimum wage hike, to $9 per hour. Already, that has led to a spike in applications, but what about the future? Gap’s Vice President of Stores Lynn Albright spoke to Vox at this week’s White House Working Families Summit about phasing in a higher wage.

DK: Companies that raise their minimum wages often cite turnover as a big reason. Is bumping your wage up for so many workers less costly than hiring new ones because wages are low?

[Turnover] is a huge cost. Not just the training but the lack of productivity and how engaged they are. So if you have people who have been there a lot longer who truly are enthusiastic members of the brand — if you think about it we’re giving 65,000 people a raise [by 2015]. Typically in retail you can have 100 percent turnover.

Now, obviously you’re not going to have zero percent turnover. But if you have a significant reduction in your turnover, from increased productivity to the expense savings of the cost of turnover, that’s significant.

DK: Have you seen any effect on turnover already?

[The employees] didn’t actually know how it was going to be rolled out. We didn’t really start talking about it with the employees until about a month ago. So I think it’s too soon to tell. But I absolutely expect that we will.

If you look at some of the states that pay — like New York City for instance, their state minimum wage is higher, we have better retention. So I think employee turnover is always a combination of you have a great boss, you get paid a nice wage. It’s a combination of both. It’s not just one thing or the other.

DK: What was the impetus behind Gap’s minimum wage decision in the first place?

It came about because, like most retailers, digital and online shopping has become much more prevalent. The customer’s already educated when she gets to the store —she or he. I say “she” because most of our customers are female. They’re already educated. If you don’t match that with the right level of skilled, educated, product-focused people in your stores, you could still lose that customer. You want to convert the customer.

DK: Why do you think this will give you a leg up on your competitors?

From competitors, for both employees and customers, I would hope that a lot of people would care. ... You have a choice where you’re going to shop and work. You don’t have to stay at those places where you don’t think that you’re treated well. We’re always competing for those people.

DK: What about someplace like Amazon? Does your new minimum wage give you a competitive advantage over e-commerce competitors?

The only thing that Amazon is really competitive for us on is speed and immediate gratification. That — their ability to take care of their customers instantaneously and respond to these customers so quickly — so we of course look at them as a competitor.

Again, it’s an investment. It’s an expense, but we’re going to have expense savings and a topline payoff, and that’s how it will pay for itself.