CostCo vs. Wal-Mart

| Tue Jul. 12, 2005 1:18 PM EDT

The Financial Times has a nice article on the classic CostCo vs. Wal-Mart head-to-head. Most notably, the vast differences in average wage—$17.41 per hour at Costco, $12 per hour at Wal-Mart's Sam's Club—don't seem to be hurting the former any. And the resulting lower employee turnover—17 percent at Costco compared to 70 percent in the rest of the sector—has probably helped the company's productivity. As anyone who's worked at a large retail chain can attest, you don't tend to put in much effort if you're only sticking around for a few months. The other key factor here, as Nathan Newman points out, is that about a fifth of Costco's workers are unionized, which in turn has had ripple effects for the rest of the chain's employees. (Though I believe Costco paid decent wages, and treated its workers fairly, before it acquired the unionized Price Club in 1993.)

Anyway, this brings to mind an old-but-worthwhile Seattle Weekly article. In 2003, investors flipped out at Costco co-founder Jim Sinegal—he was treating his workers and customers much too well for Wall Street's tastes, you see. Sinegal held on, but he seems like the great exception here; most CEOs obviously won't rank "rewarding shareholders" as their fifth priority. The piece also quotes a number of experts squaring off on whether the CostCo model always makes good financial sense for companies to pursue on their own. Not every store can be like CostCo, after all, and consumers might be worse off if CostCo was all there was. The likely answer, then: it depends. If the federal minimum wage were raised, or if the country was running at full employment and wages started rising naturally, businesses like Wal-Mart might run into trouble, and companies such as CostCo would thrive. (Although, worth noting that Wal-Mart managed just fine during the tight labor market in the late '90s.)

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