If Costco's worker generosity is so great, why doesn't Wal-Mart imitate it?

[Omaha Steve]

http://www.slate.com/id/2194332/

Commentary about business and finance.
Wage Against the MachineIf Costco's worker generosity is so great, why doesn't Wal-Mart imitate it?
By Liza Featherstone
Posted Friday, June 27, 2008, at 7:29 AM ET


Nearly everyone who's looked at Wal-Mart's practices as an employer—its union busting, sex discrimination, low wages, and minimal benefits—has concluded that it's America's retail bad guy. By contrast, many who've examined the practices of Wal-Mart's competitor Costco—including New York Times labor reporter Steven Greenhouse in his recent book The Big Squeeze: Tough Times for the American Worker—conclude that it's the good guy. Costco CEO and founder Jim Sinegal repeatedly insists to Greenhouse that treating employees well is "good business."

That makes a pleasing sound bite, and assume for a moment that Sinegal's assertion is true. Why, then, wouldn't Wal-Mart do everything it could to make itself more like Costco? Now assume that Sinegal's assertion is false. Why, then, does Costco treat employees better if that's against the company's financial interests?

It's not hard to make a case that Costco pays employees more. The most relevant comparison is between Costco and Sam's Club, Wal-Mart's membership warehouse, since both business models rely on membership fees for a large percentage of revenues. A Sam's Club employee starts at $10 and makes $12.50 after four and a half years. A new Costco employee, at $11 an hour, doesn't start out much better, but after four and a half years she makes $19.50 an hour. In addition to this, she receives something called an "extra check"—a bonus of more than $2,000 every six months. A cashier at Costco, after five years, makes about $40,000 a year. Health benefits are among the best in the industry, with workers paying only about 12 percent of their premiums out-of-pocket while Wal-Mart workers pay more than 40 percent.

Some proponents of corporate generosity argue that better-paid workers are more productive. That may be the case here, since Costco's revenues per employee are about five times as high as Wal-Mart's. (No separate financials are available for Sam's Club.) Then again, it's also the case that Costco sells more expensive stuff—high-end French wine, triple-cream brie, and Cartier watches, all of which presumably have high margins—along with the cheap toilet tissue. Take a look at the two retailers' summer offerings: While Wal-Mart sells a $199 swing set, at Costco we find a "summer fortress play system" for $1,499.99. A set of patio furniture at Wal-Mart was $199 in early summer; a patio heater at Costco is the same price. Costco's Web site promotes a $5,000 hot tub with a stereo. On Wal-Mart's site last week, the most prominent item was a $48 bike—after all, its impoverished customers can't afford gas these days.

Another theoretical benefit is that Costco employees, being better paid, are less likely to leave the company. Again, some data back that up: Greenhouse points to Costco's low turnover rate, which is 20 percent and, among employees who stay at least a year, 6 percent. Wal-Mart's is about 50 percent. But is this a business advantage for Costco? While Greenhouse points to the costs of training and hiring new employees, a widely leaked 2005 memo from Wal-Mart offers a different perspective. In it, Wal-Mart's senior vice president of benefits argued that the company's turnover rate was too low. After all, she explains, long-term employees are more expensive and not necessarily any more productive. Such reasoning—though sinister—may actually help explain why Wal-Mart's profit margins are twice as high as Costco's (3.36 percent compared with 1.75 percent).

FULL 2 page story at link.

[MadMaddie]

1. Costco's CEO is a different type of Leader than WalMart's leaders

Costco CEO doesn't take bonuses from his company

http://seekingalpha.com/article/19115-costco-ceo-bonus-refusal-not-exactly-financial-hari-kari

and then you have WallyMart CEO

http://www.thegoodhuman.com/2007/03/12/wal-mart-ceo-gets-22-million-bonus/

[MannyGoldstein]

5. I Remember A Radio Show A Few Years Ago...

Several Wall Street analysts took turns discussing how screwed up Costco was - that they can't unilaterally pay employees more, etc., without facing immediate financial ruin or worse. Each tried to outdo each other in bad-mouthing Costco's practices.

Then they got Costco's CEO on the phone, who talks like a New Yorker, although I don't know if he is - very blunt and to the point, no standard glib CEO weasel crap: He told the analysts something like "Well, if you don't like my company, don't buy my stock. We're handily beating the other guys, so we must be doing something right."

He really didn't give a fuck. He wants to do the right thing for Costco, not for Wall Street. (Strangely, the stock keep rising rapidly anyway.)

[EV_Ares]

2. I know that Costco is considered a Blue company, gives it political contributions to

the democrats. I know personally of an employee who left Sams to work at Costco and have talked with him as I get my gas at Costco a lot and he works out at the pumps different times. He said he gets paid more and the main thing is his health care benefits are a lot better which helps him and his family. So, it is true, Costco seems to take care of their employees better and more fairly and still manages to do better overall in their earnings as well. Just the typical difference in the mindset of the greedy corporate culture of the republicans and the democrats.

[MannyGoldstein]

3. It's Probably All About Revenue Per Employee

It's unlikely that Costco has high margins on high end goods - a http://query.nytimes.com/gst/fullpage.html?res=9B06E3DB113BF93AA15756C0A9649C8B63&scp=1&sq=costco+wine+margins&st=nyt">NY Times piece a few years ago found that markups were pretty low.

The thing that strikes me when I visit my local Costco is that the employees hustle. They get things done, and at a fast pace. They're obviously enthusiastic, and empowered to do what they need to do. By contrast, the folks that I've seen working at Wal-Mart have seemed to be neither enthusiastic nor empowered. Anyone who's managed folks knows that motivated employees are far more efficient than ones who are not unmotivated,

Costco can get the job done with fewer people - and that's their magic.

[DJ13]

4. I worked for Costco back in the mid 90's

Yes they pay well, but they (ab)use a system of tiered employee benefits that is very damaging to families.

You see, they typically run their stores with well over over 50% part time employees, but you dont qualify for any benefits (medical, better pay, etc.) as a part time employee, and they had it set up as next to impossible to qualify as a full time employee.

Becoming a full time employee required an average of over 30 hours per week for 6 straight weeks.

No problem, right?

Well, they operate with so many part time employees that the average PT hours was seldom over 20 hours per week (usually 15 or so), and the management were under strict orders to keep people from qualifying for FT.

It wasnt unusual during the busiest times of the year for a PT employee to suddenly get scheduled for 29 hours per week for a couple of months straight, but still never achieve full time status.

Oh it WAS possible to move directly from PT to FT, and heres where its a burden on their employees families, as you COULD become FT provided you were willing to move to an entirely different state where a new store was going up.

[Demit]

6. That's one of those questions that contains the answer right in it.

The Costco business model is not based on greedy exploitation of others, the way the Walton family's business is. They would recoil in horror from it. Less billions for them!

The business writers sure have a hate on for Costco, don't they? I remember an article in the NYT a few years ago with an underlying theme of Oh how disgusting is Costco, for treating its workers well (I paraphrase). You could feel the contempt ooze off the page.