FORTUNE -- When Gap Inc. (GPS) announced that it would raise the minimum wage it pays retail associates to $10 per hour by 2015, it was impossible for observers not to consider the move politically motivated.
After all, Washington is mired in a debate over raising the federal minimum wage to roughly the same amount ($10.10) Gap is promising to pay its workers. Even President Obama made a point to praise Gap's move, saying, "I applaud Gap Inc. for announcing that they intend to raise wages for their employees beginning this year."
But the change at Gap was anything but political, and it should be taken as a sign that if the traditional retail industry is smart, it will invest much more in its employees as it competes with low-cost online retailers.
For years, the brick-and-mortar retail industry has at least claimed to understand that the key to survival is to leverage their store base and give customers what online retailers can't: great face-to-face service and in-store experiences. Companies like Best Buy (BBY), Macy's (M), and Wal-Mart (WMT) are racing to build out a so-called omni-channel shopping experience where customers can seamlessly switch from shopping online to shopping in-store. That means using stores as distribution centers for an online retail operation, and creating an in-store shopping experience in which shoppers can get expert advice on products they want.
Of course, the omni-channel shopping experience requires significant investment in technology and, above all else, workers. Zeynep Ton, a professor of operations management at MIT and author of the recently published The Good Jobs Strategy, argues that Gap Inc.'s recent move is an acknowledgment of that fact. "It's ironic that as the retail industry has become more complex, investment in employees has gone down," she says. "More complexity requires workers who are able to cope with this complexity."
And an able workforce needs to be well paid, trained, and offered predictable scheduling so that they are sufficiently motivated to help a complex retail operation succeed. Ton's book looks specifically at four retailers -- Trader Joe's, Spanish-based grocer Mercadona, Costco (COST), and QuickTrip -- that have successfully adopted the "good jobs strategy" by heavily investing in worker pay and training.
Ton says companies like Trader Joe's pay their employees well so that they are motivated to provide good customer service, and these workers are trained so that they can perform a variety of tasks. Finally, her model retailers hire more workers than their competitors, operating with labor "slack" so that they can offer employees more predictable hours and customers as much service as they want.
It makes sense that most retailers have avoided this strategy. Ton writes:
Retailers view store labor as a cost driver, not a profit driver. And labor is not just any cost. After the cost of goods sold, labor is the largest cost for most retailers. Perhaps more important, labor is the largest controllable cost. In a pinch, retailers cannot quickly cut other large expenses such as the cost of the products they sell or their retail costs, but they can quickly and fairly easily reduce what they spend on training, benefits ... or the total number of employee hours.
Retail executives have failed to view labor as an investment rather than an expense. Of course, creating a state-of-the-industry operations management department isn't easy. Firms must have a clear strategy for growing their businesses through investing in employees. But the rise of e-commerce has made it an appealing option for many traditional retailers. If you can't beat Amazon (AMZN) on cost, you'd better find another way to keep your customers happy. "It's a step in the right direction," says Ton of Gap's pledge to pay its workers more. "Just paying people more isn't enough, though. You really have to overhaul your operations so that your employees can drive returns."
I took to the Twittersphere to defend my article on Wal-Mart's pay problem.
FORTUNE -- Earlier this week, I wrote an article saying Wal-Mart could afford to significantly increase what it pays its employees.
My basic argument: Wal-Mart, like all companies, has to split up the money it generates between investors, lenders, and workers. And when you take a look at where shares of Wal-Mart (WMT) are trading, it seems to imply MOREStephen Gandel, senior editor - Nov 15, 2013 4:40 PM ET
Can a hybrid union/professional association give white-collar employees a voice at work without the power of collective bargaining?
By Stephenie Overman, contributor
FORTUNE -- Labor unions have historically made little progress in organizing private-sector professional workers, but now another kind of organization is drawing interest among the white-collar crowd.
That alternative is a hybrid of a union and a professional association that is designed to give professional employees a stronger say in workplace MORESep 2, 2011 10:33 AM ET
Two years after the recession ended, U.S. workers still face a grim job market. And with tepid economic growth and an election year breeding uncertainty, companies are likely to have the upper hand for some time.
By Katherine Reynolds Lewis, contributor
FORTUNE -- It's a tough time to celebrate the American worker. This coming Monday marks the third consecutive Labor Day with an unemployment rate topping 9% and 14 million Americans looking for work. MORESep 2, 2011 5:00 AM ET
In a nutshell, it's because they don't have much choice.
The bright spot in a drab employment picture is that workers have been stretched so thin during the past couple years that companies are going to have to (gasp!) hire more.
You may be understandably suspicious. Corporate America has been raking in massive profits – they flooded in at a record $1.68 trillion annual rate in the fourth quarter of 2010 MOREColin Barr - May 6, 2011 6:32 AM ET
Will a housing double dip deflate the wheezing jobs recovery?
It seems impolite to ask, what with employment growth sucking wind already. Companies added just around 100,000 jobs a month over the past year, a rate Fed chief Ben Bernanke dismissed Friday as "insufficient to materially reduce the unemployment rate."
But it gets worse. Economists at Bank of America Merrill Lynch say one key to a jobs recovery is an MOREColin Barr - Jan 12, 2011 6:34 AM ET
Companies are hiring, but more often they're bringing on temporary employees to meet their labor needs. Will a rise in temps lead to more permanent hiring?
With more than 15 million people in the U.S. out of work and the latest unemployment rate edging slightly higher, it's hard to see how anyone could build a case proving today's job market isn't all doom and gloom.
Last week, The New York Times chronicled MORENin-Hai Tseng, Writer - Dec 29, 2010 5:00 AM ET
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