Gap Inc. (GPS), the owner of Old Navy, Banana Republic and its namesake apparel chain, will raise its hourly pay for U.S. employees to $9 in 2014 and $10 next year, saying it wants to “do more than sell clothes.”
The increased wages will benefit about 65,000 store employees by 2015, the San Francisco-based company said today in a statement. Chief Executive Officer Glenn Murphy announced the plan during an employee conference call this morning.
In making the move, Gap adds fodder to a national debate on whether the federal government needs to step in and raise the minimum wage. President Barack Obama, who praised Gap’s move today, wants to increase the rate to $10.10 an hour from $7.25, saying it will bolster the economy and reduce income inequality. Most Republican lawmakers oppose the idea.
While the company generally pays more than the minimum wage in most markets, the move is a strategic investment and “the right thing to do” for its employees, said Jack Calhoun, global brand president of Banana Republic.
“Winning companies in our industry are competing for talent every day,” Calhoun said in a phone interview. “If I can attract and retain the best people in the industry, then I’m going to win, and if I win, our customer wins. There’s a competitive advantage that we have as Gap Inc. by doing this.”
Wal-Mart Stores Inc. (WMT), the largest private employer in the U.S., said today that it’s assessing an increase in the federal minimum wage. The company is weighing the impact of additional payroll costs against possibly attracting more consumer dollars at its stores, said David Tovar, a spokesman for the Bentonville, Arkansas-based company.
Increasing wages can improve customer service, said Dorothy Lakner, a New York-based analyst with Topeka Capital Markets. It also may be easier for Gap to make the change following seven straight quarters of sales and profit growth.
“You treat people well, they’ll treat your customers well,” she said in a phone interview. “Gap had a strong year last year compared to a lot of their peers. That sends a pretty strong message to employees that, ‘We had a good year, but you’re going to be rewarded too.’”
In commending Gap’s decision, Obama again urged Congress to raise the national minimum wage. Already, the president has required federal contractors to pay employees $10.10 an hour.
“In my State of the Union address, I asked more businesses to do what they can to raise their employees’ wages,” Obama said in a statement. “I applaud Gap Inc. for announcing that they intend to raise wages for their employees beginning this year.”
Shares of Gap, the biggest apparel-focused retailer in the U.S., have climbed 29 percent in the past year. The stock was little changed in today’s trading, closing at $42.19 in New York.
The company plans to make the wage change at all six of its chains, including Piperlime, Athleta and Intermix.
“The people in our company who engage directly with our customers carry an incredible responsibility,” Murphy said. “Our success is a result of their hard work, love of fashion and commitment. We hope this decision provides them with some additional support as they grow their careers with Gap Inc.”