What Wal-Mart Can Learn from Costco
Wal-Mart defenders are quick to justify the company’s low wages and poor health care plan as necessary for keeping prices low. This piece from author Liza Featherstone argues otherwise. Featherstone examines the differences between Sam’s Club and Costco, two stores with similar business models but divergent views on employee treatment.
Costco’s comparatively higher wages, better health care plan and unionized workforce prove that employee happiness and high profits can co-exist, despite Wal-Mart’s seeming insistence to the contrary. And while Wal-Mart’s profit margins are twice as high, Costco’s revenue per employee is five times that of its Arkansas-based competitor. So while Wal-Mart may insist on low pay and poor benefits, its forward-thinking competitors might just prove this business model is behind the times.
Wage Against the Machine [Slate]
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).
In an interview, Costco CFO Richard Galanti told me that by offering higher pay, Costco can hire “better-quality employees.” To Galanti, workers are a retailer’s “ambassadors” to the public. Costco may be able to attract people with more experience, education, or a better “attitude” (e.g., a more obliging smile or the realization that it’s better not to chew gum or file your nails on the job). All of that’s probably true, though tough to quantify—and tougher still to measure the effects of such worker quality on Costco’s business.
Even so, investors in recent years have rewarded Costco significantly more than Wal-Mart, which may suggest that Wal-Mart’s public black eyes scare Wall Street to some degree. Probably the worst publicity Wal-Mart has received for its employment practices was in 2004 and 2005. During these two years, developments in the sex-discrimination suit drew attention to its plaintiffs’ charges; numerous communities blocked Wal-Mart from expanding stores; many news stories exposed child labor, overtime abuses, and exploitation of undocumented immigrants; labor and community groups were constantly picketing the retailer; and two well-funded national organizations formed with the express purpose of publicizing Wal-Mart’s crimes against its workforce. All of this may have had some effect: From Jan. 1, 2004, to Jan. 1, 2006, Wal-Mart’s stock was down 9.7 percent. Costco’s went up an impressive 37 percent during this time. (The S&P went up 14.5 percent.)
In the subsequent two years, the discrepancy has only deepened, tending to confirm Galanti’s argument that in the long term, higher wages are “a great model.” Indeed, analysts’ consensus on Costco’s long-term growth expectations is better than their consensus on Wal-Mart: 13.3 percent as opposed to 11.7 percent, respectively. That’s intriguing because Wal-Mart is more profitable and has demonstrated better earnings growth (12.47 percent five-year earnings-per-share growth as opposed to 9.8 percent for Costco). Employee relations may be part of the picture, but Galanti points out there are many other reasons for analysts’ confidence in Costco. “Seventy percent of our earnings come from membership fees,” he says. “We’d really have to screw up to lose that!” Costco may also be more recession-proof than other discount retailers, because its customers are richer and because it sells so much food relative to other goods. “Even in an economic downturn,” Galanti says, “people still have to eat.”
So why does Costco bother being nice to workers, given that it is so difficult to calculate a clear payoff for decency? One reason is old-school: a union. About 11 percent of Costco’s 127,000 employees are represented by the Teamsters Union, while not one Wal-Mart employee is a union member. Not that Costco is a Swedish paradise of labor-management cooperation. “We wish they [the union] weren’t there,” Galanti admits, “because we don’t feel we need a third party to talk to our employees.” Yet the relationship shows that even a lackluster union like the Teamsters can help make life better for employees.
Another factor is the personality of the CEO. In my interview with Galanti, he mentioned Jim Sinegal every couple of minutes, attributing the company’s high wages to the CEO’s personal values. CFO Galanti acknowledged having at times argued with his boss, urging him to curb Costco’s generosity on health care. (Sinegal eventually agreed with him, reluctantly, in 2003 but insisted that care remain affordable to employees.)
Sinegal’s kindliness is impressive, but he’s also 72 years old and thus won’t be around forever. Perhaps he’s created a corporate culture strong enough to outlast him, but that’s impossible to predict. And until Costco boosters can make a concrete case that the company’s generosity—however welcome—has a duplicable effect on the company’s bottom line, it seems unlikely that a crowd of Jim Sinegals is going to emerge in the nation’s executive suites.
Posted by Alex Goldschmidt on Friday, June 27, 2008
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COMMENTS
The best line of the entire article:
About 11 percent of Costco’s 127,000 employees are represented by the Teamsters Union, while not one Wal-Mart employee is a union member. Not that Costco is a Swedish paradise of labor-management cooperation. “We wish they [the union] weren’t there,” Galanti admits, “because we don’t feel we need a third party to talk to our employees.”
Tim in Indy
Friday, June 27 at 11:15 AM
The best line of the entire article:
“Even in an economic downturn,” Galanti says, “people still have to eat.”
Let us all now bow down and gives thanks for Walmart and George Bush wrecking the U.S. economy. The libertarian model is working so very well. At least Walmart has Chinese communist friends this 4th of July!!
Walmart profits in American worker hunger and poverty
Friday, June 27 at 03:48 PM
Costco is a good place to shop and they have a union which is good for the employees. Walmart does not come close to them as a store. It says she makes $19.50 a hour. How can a good paying job be bad for anyone? A bonus check of $2,000 every six months. Why complain about that? Walmart sucks big time.
Walt Montelongo in
Friday, June 27 at 07:28 PM
Safeway- all the way!
2lb bag of colby jack cheese (shredded) $5.99
Walmart- 2lb bag of colby jack shredded (great value-brand) unknown real contents- $7.98
Peaches-fresh .77 lb - Safeway
Walmart $1.89
On and on and on!
No need for walmart!
A very nice cashier proudly wearing her Safeway name tag and UFCW pin checked me out. My grocieries were bagged & put in my cart by the customer service clerk. There was one stationed at every check out!
And, the nicest thing of all,- No - baboon/monkey guarding the exit stopping all the valued customers to check their receipts.
Michelle in
Friday, June 27 at 07:58 PM
micyelle you want to pay them dam safeway price so shut up,you bash but you go to expensive ufcw with your union buddies.why you piss and moan and you sure as hell dont pay wm half for same junk?
m att hew vantress in gresham,oregon
Friday, June 27 at 09:28 PM
What you have to understand, Michelle, is the pro Wal-Mart bunch want to eliminate choice. Get rid of all the grocery, hardware, and dollar stores so Wal-Mart can sell their cheap crap to a captive consumer. It’s particularly important now with the economy in the tank.
What’s good for Wal-Mart is BAD for America!
Ken V in Texas
Saturday, June 28 at 05:20 AM
bs ken we want to eliminate choice.we shop where we can dam well afford to buster.what is so wrong ken about buying the same food items for lower prices at wm rather than at expensive ufcw union grocery store?are you getting a better quality food product paying more at expensive ufcw union grocery stores?no you are not.michele most people working in ufcw union grocery stores are unhappy with wages and ability to get full time work.i am an ex ufcw union grocery worker and i know what i am talking about.hey ken the same cheap crap is sold at places you favor dollar tree,target,costco and etc.how come you dont bitch and moan about that?
m att hew vantress in gresham,oregon
Saturday, June 28 at 06:02 AM
“What’s good for Wal-Mart is BAD for America!"~Ken V in Texas
Well said Ken, and very true!!!
R E M E M B E R
J O N Q U I E R E
Q U E B E C
Home of Walmart Worker Abuse
R E M E M B E R
J A C K S O N V I L L E
T E X A S
Home of Walmart Worker Abuse
Alex in Ontario, Canada
Saturday, June 28 at 06:27 AM
“What you have to understand, Michelle, is the pro Wal-Mart bunch want to eliminate choice. Get rid of all the grocery, hardware, and dollar stores so Wal-Mart can sell their cheap crap to a captive consumer. It’s particularly important now with the economy in the tank. “
Coming from a man who wants to see Walmart shut down and eliminate that choice from the consumer. Hypocracy at its best. Classic!
mary in
Saturday, June 28 at 07:18 AM
If Wal-Mart doesn’t sell it, you don’t need (or want) it, huh, Mary?
Wouldn’t it behoove you pro Wal-Marters to fight to abolish garage/yard sales as they cut into Wal-Mart’s customer base?
Ken V in Texas
Saturday, June 28 at 09:05 AM
Ken V: Touche’---(That’s definitely a “keeper"). And since most garage sales are on Saturday mornings,there’s no time like the present for Mary to get started!
ddrb in
Saturday, June 28 at 09:11 AM
P.S.: I wonder if they sell T.P. at garage sales?
ddrb in
Saturday, June 28 at 09:13 AM
yeah i agree what is good for walmart is bad for america
business networking at www.schmoozii.com
schmoozii in
Saturday, June 28 at 09:23 AM
Can anything be good for anyone when it is good for Walmart? I doubt it.
R E M E M B E R
J O N Q U I E R E
Q U E B E C
Home of Walmart Worker Abuse
R E M E M B E R
J A C K S O N V I L L E
T E X A S
Home of Walmart Worker Abuse
Alex in Ontario, Canada
Saturday, June 28 at 01:26 PM
...and dollar stores so Wal-Mart can sell their cheap crap...
Lemme guess - an oxymoron—right?
bbrd in
Saturday, June 28 at 04:13 PM
“...and dollar stores so Wal-Mart can sell their cheap crap...”
Yeah, don’t you know those ‘dollar stores’ sell nothing but ‘high quality’ items, “Made in the good old U.S.A.”!!
That’s where Ken V. shops, that and garage/yard sales!!
RDS in
Saturday, June 28 at 11:16 PM
Wrong again bbrd. An ‘oxymoron’ is now defined as Rush Limbaugh.
“Few things are harder to put up with than the annoyance of a good example.”
Mark Twain
SanDiegoView in
Sunday, June 29 at 03:06 AM
That’s where Ken V. shops....
You know me, RDS, I’m all about choice. Once you’ve made the choice to buy cheap crap, I believe you should also have a choice where you buy it.
How many times have we read comments from shoppers and/or employees saying they only shop/work at Wal-Mart because they have no choice?
“Next to supercenters, dollar stores remain the fastest growing channel among food, drug, and mass retailing.”
I haven’t found any stats on garage/yard sales yet, but when I do I’ll be sure to post them.
:o)
Ken V in Texas
Sunday, June 29 at 05:48 AM
Ken V, your bs seems to be getting deeper and deeper.
Who is the one who’s on a mission to shut down “the beast of bentonville” in order to eliminiate choices for consumers? Who is the one who says let there be free markets where consumers choose where they want to shop?..... I thought so… Too bad what’s good for Ken is bad for the consumer.
You’re drinking a little too much of that koolaid again. Do you, Screwed, SDV and ddrb come up with this stuff during your usual weekly Protest Walmart meetings?
mary in
Sunday, June 29 at 01:11 PM
...during your usual weekly Protest Walmart meetings?
I honestly can’t remember, Mary. Those weekly meetings are more like weekly parties. In the battle against Wal-Mart, we may not have the most money but we have the most fun!
Meanwhile, put this under the heading of…
Duping the duper!
Walmart Does Signing With Fake Steve Austin
A Walmart in Indiana has come under fire after being duped in to believing a look alike was the real Steve Austin, and allowing him to charge fans at the store for photos and autographs. After managers got suspicious (due to his banged up old car) they phoned the police, but the impersonator “ran like a scolded dog.”
Um, I believe the expression is “like a scalded cat” (or at least that’s how we say it in Texas).
Ken V in Texas
Sunday, June 29 at 03:25 PM
“A Walmart in Indiana has come under fire after being duped in to believing a look alike was the real Steve Austin, and allowing him to charge fans at the store for photos and autographs. After managers got suspicious (due to his banged up old car) they phoned the police, but the impersonator “ran like a scolded dog.””
If Wal-Mart allowed him, why did they then call the police? You would think that, calling the police, would be NOT ALLOWING!!
Besides, the fact that Wrestling is FAKE in the first place, being a FAKE wrestler, would be no problem, because they all are FAKES!!
RDS in
Monday, June 30 at 02:19 AM
here’s something to check out:
Subject: Michele Obama
This is a snippet of Michele Obama’s Princeton thesis, which was restricted
and not available for viewing.
This does not bode well for USA 2008 national elections, if fact
it is scary!!
According to Snopes.com, Princeton was requested to put a
“restriction” on distribution of any copies of the thesis of Michelle Obama
(a/k/a/ Michelle laVaughn Robinson) saying it could not be made available
until November 5, 2008 but when it was published on a political web site
they decided they would lift the restriction.
Subj: Thesis - Michele Obama aka Michelle LaVaughn Robinson
OBAMA’S MILITANT RACISM REVEALED
In her senior thesis at Princeton, Michele Obama, the wife of
Barack Obama, stated that America was a nation founded on “crime and
hatred”. Moreover, she stated that whites in America were “ineradicably
racist”. The 1985 thesis, titled “Princeton-Educated Blacks and the Black
Community” was written under her maiden name, Michelle LaVaughn Robinson.
Michelle Obama stated in her thesis that to “Whites at Princeton ,
it often seems as if, to them, she will always be Black first...” However,
it was reported by a fellow black classmate, “If those “Whites at Princeton
“ really saw Michelle as one who always would “be Black first,” it seems
that she gave them that impression”.
Most alarming is Michele Obama’s use of the terms “separationist”
and “integrationist” when describing the views of black people.
Mrs. Obama clearly identifies herself with a “separationist” view
of race.
“By actually working with the Black lower class or within their
communities as a result of their ideologies, a separationist may better
understand the desperation of their situation and feel more hopeless about a
resolution as opposed to an integrationist who is ignorant to their plight.”
Obama writes that the path she chose by attending Princeton would
likely lead to her “further integration and/or assimilation into a white
cultural and social structure that will only allow me to remain on the
periphery of society; never becoming a full participant.”
Michele Obama clearly has a chip on her shoulder.
Not only does she see separate black and white societies in
America , but she elevates black over white in her world.
Here is another passage that is uncomfortable and ominous in
meaning:
“There was no doubt in my mind that as a member of the black
community, I am obligated to this community and will utilize all of my
present and future resources to benefit the black community first and
foremost”
What is Michelle Obama planning to do with her future resources if
she’s first lady that will elevate black over white in America?
The following passage appears to be a call to arms for affirmative
action policies that could be the hallmark of an Obama administration.
“Predominately white universities like Princeton are socially and
academically designed to cater to the needs of the white students comprising
the bulk of their enrollments.”
The conclusion of her thesis is alarming.
Michelle Osama’s poll of black alumni concludes that other black
students at Princeton do not share her obsession with blackness. But rather
than celebrate, she is horrified that black alumni identify with our common
American culture more than they value the color of their skin. “I hoped that
these findings would help me conclude that despite the high degree of
identification with whites as a result of the educational and occupational
path that black Princeton alumni follow, the alumni would still maintain a
certain level of identification with the black community. However, these
findings do not support this possibility.”
Is it no wonder that most black alumni ignored her racist
questionnaire? Only 89 students responded out of 400 who were asked for
input.
Michelle Obama does not look into a crowd of Obama supporters and
see Americans. She sees black people and white people eternally conflicted
with one another.
The thesis provides a trove of Mrs. Obama’s thoughts and world
view seen through a race-based prism.
This is a very divisive view for a potential first lady that would
do untold damage to race relations in this country in a Barack Obama
administration.
Michelle Osama’s intellectually refined racism should give all
Americans pause for deep concern.
Now maybe she’s changed, but she sure sounds like someone with an
axe to grind with America. Will the press let Michelle get a free pass
over her obviously racist comment about American whites? No doubt, it will.
PS: We paid for her scholarship!
KMS in
Monday, June 30 at 11:19 AM
I need racism and bigotry to win this election. I cannot possibly win on foreign policy or economic issues. I need the distraction of race hatred, please please please help me...after all, raising endless race issues is the American thing to do.
John McCain 08, 07, 06, 05, 04, 03, 02, 01, 00, 99 in
Monday, June 30 at 12:55 PM
Pardon me, but was not John McCain’s family THEMSELVES not the object of race baiting and smearing ,by fellow Republicans,back in 2000?When the McCains adopted child was smeared by the Reichwing machine as being an illegitimate black love child?
ddrb in
Monday, June 30 at 01:19 PM
BTW: The RNC’s Rick Davis recently revealed the WalMart moms will be the focus of the Rethugs “target” voters,this fall. It would behoove them to remember these “WalMart shopper “moms come in MANY colors and ethnicities-as do the moms who WORK at WalMart,and coincidentally,happen to be voters,too!
ddrb in
Monday, June 30 at 01:29 PM
NEW REPORT: McCain Would Give America’s 200 Largest Corporations $45 Billion In Tax Breaks------------------
If you’re a CEO of one of America’s largest corporations and have enjoyed the Presidency of George W. Bush, a contribution to the McCain campaign is looking like a pretty good investment.
A new report from the Center For American Progress Action Fund finds that a key piece of John McCain’s tax plan — cutting the corporate tax rate from 35% to 25% — would cut taxes by almost $45 billion every year for America’s 200 largest corporations as identified by Fortune Magazine.
Eight companies — Wal-Mart Stores Inc., Exxon Mobil Corp., ConocoPhillips Co., Bank of America Corp., AT&T;, Berkshire Hathaway Inc., JPMorgan Chase & Co., and Microsoft Corp. — would each receive over $1 billion a year.
These giveaways are just one part of McCain’s doubling of the Bush tax cuts for corporations and the wealthy which would create the largest deficits in 25 years and drive the United States into the deepest deficits since World War II.
A recent analysis by the Public Campaign Action Fund found that John McCain’s campaign has received $5.6 million from the PACs and executives of the Fortune 200.
Over the past eight years, under George W. Bush, American workers have seen their wages stagnate as corporate profits have skyrocketed. John McCain’s misguided priorities show he’s more of the same: the same $45 billion in tax cuts for America’s 200 largest companies could be used to lift over 9 million Americans out of poverty.(Think Progress)~~~~Who will be saving more and living better,under John McCain? I doubt it will be the WalMart workers,although more tax cut money would give WalMart LESS excuse for not upping the associates hourly wages!
ddrb in
Monday, June 30 at 01:44 PM
hey ddrb why are you so quiet when all your favorite stores get the same` tax breaks and govt subsidies you bitch and whine wm gets?
m att hew vantress in gresham,oregon
Tuesday, July 01 at 05:36 AM
btw i am a lying asshole that cant prove anything i say.so shut your mouth and get off of here you hypocrite loser.the reason you wont shop at walmart is because you arent a complete chinese crap loving asshole like me.
m att hew vantress in gresham,oregon
Tuesday, July 01 at 07:03 PM
McCain’s Double Standard: Hawk In The Drug War, Yet His Wife Got No Penalty
The McCains have worked to make Cindy McCain’s addiction into a political asset--despite the fact that she stole the drugs from a charity she directed and used them while mothering four young children.
Let’s see… “intellectually refined racism” or thieving druggie...??? What’s a voter to do?*
*If you’re a disenchanted “true conservative”, evangelical, or fiscal conservative, my advice is STAY HOME!
Ken V in Texas
Tuesday, July 01 at 09:51 PM
Ken V: I read that Cindy had been a rodeo queen before marrying John. With all that ropin’ and ridin’,think they can lasso the Presidency?
ddrb in
Thursday, July 03 at 09:27 PM
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