Years ago, when I was a young account executive at an advertising agency, my boss came into my office with a paper in his hand. “I’ve got a problem with your expense report,” he said, jabbing his index finger at the total, “You’re not spending enough to entertain our clients. Get out there and take them to dinner and to play golf!” He didn’t have to ask twice. The point he was making was that he wanted our clients to enjoy having our firm as their agency, and part of that included ample opportunities to enjoy a complimentary meal or tickets to a good show.
GAP, IKEA and others are applying the same principle in a far different way with their recent announcements that they will systematically increase the minimum wages they pay their workers. Increasing your own costs to do business may seem counterintuitive, but like my old boss, these companies expect the returns to be well worth the investment.
I’m a branding guy and so I tend to see things through a branding filter, but this looks like a shrewd brand move to me.
There is considerable debate right now among political opponents over the push to raise the federal minimum wage. There are pros and cons to both arguments, but GAP is not taking sides. In fact, what they are doing is looking to seize an advantage. “To us, this is not a political issue,” GAP Chairman and CEO Glenn Murphy said. “Our decision to invest in frontline employees will directly support our business, and is one that we expect to deliver a return many times over.”
A brand experience typically includes a complex collection of touchpoints—everything from website to product manuals to customer service to using the actual product. For companies like IKEA and GAP, the in-store retail experience is a key to their success. It’s as simple as how hard an employee works to help a customer find what they are looking for. In their press release announcing the new policy, GAP explains that increasing the minimum wage will help “attract and retain great talent” and improve customers’ experiences.
“Great talent” at $10 an hour may seem like a contradiction in terms, but remember that this is relative to the situation. If GAP pays a dollar or two more an hour than the average store in the mall, that’s where every teen seeking a part-time job is going to apply. GAP will be able to choose the best of those and reward them with a higher wage. So, having upgraded their employees who deal with customers all day long, they’re betting that the service will improve as well, thus improving a little bit of the brand experience of choosing hip khakis and T-shirts.
Paying 10-20 percent more than minimum wage will also have the positive effect of retaining good employees, which means GAP can reduce turnover and the cost of training new employees, and have more experienced employees in their stores. Which, in turn, should lead to higher productivity.
By publicizing the shift to a higher wage structure, GAP is literally putting their money where their mouth is, and is making an implied promise that their customers should EXPECT better service from a better-paid workforce.
Neither the GAP brand nor the IKEA brand are about customer service, per se—GAP is about everyday fashion and IKEA provides affordable style in home furnishings. But, for each of them, having better-than-average service associates adds a little bit of a premium to their brands.
Of course, raising wages to attract a strong workforce is hardly a new idea. Henry Ford famously did it 100 years ago when he elected to double the wages of his factory workers. At the time, “The Wall Street Journal” was sharply critical, saying, “To double the minimum wage, without regard to length of service, is to apply Biblical or spiritual principles where they do not belong.” They saw it as some kind of corporate welfare, but Ford was actually at the forefront of expanding the middle class he needed to buy his cars.
I expect that other brands will be tempted to make a move similar to GAP and IKEA. (Apple actually preceded both of these brands with an across-the-board hike for their retail store workers in 2012.) For brands where personal interaction makes a difference, it could be a very smart move.
As published in the Central Penn Business Journal and Lehigh Valley Business.