Walmart vs. Costco

Last week, striking Walmart workers and supporters of OUR Walmart converged on the company's shareholder meeting in Bentonville, Arkansas, calling for higher wages and better working conditions. Walmart employee Janet Sparks delivered a shareholder resolution that would have required senior executives to hold a large portion of their company shares until reaching retirement age, which would more closely align executives' interests with shareholders. She told the crowd that the last bonus associates at her Baton Rouge, Louisana store received was for just $26.17 and that Walmart CEO Mike Duke made more than 1,000 times what the average Walmart worker did last year.

Low wages and insufficient benefits for Walmart workers don't just affect workers and their families. Low-wage workers often need to rely on public benefits for healthcare, food, and other necessities for themselves and their families. A recent report by Congressional Democrats calculated that one Wisconsin Walmart supercenter likely costs taxpayers $900,000 a year when public assistance costs for the store's employees and their families are added up.

When Elizabeth Grossman wrote last week about the Equitable Food Initiative, which combines respect for farm workers with food safety, one of our readers commented that EFI leading participant Costco has other initiatives to improve the food supply and pays employees well (including good benefits). A recent BloombergBusinessweek piece on Costco explores Costco's treatment of employees, which is in stark contrast to Walmart's. Brad Stone writes:

Despite the sagging economy and challenges to the industry, Costco pays its hourly workers an average of $20.89 an hour, not including overtime (vs. the minimum wage of $7.25 an hour). By comparison, Walmart said its average wage for full-time employees in the U.S. is $12.67 an hour, according to a letter it sent in April to activist Ralph Nader. Eighty-eight percent of Costco employees have company-sponsored health insurance; Walmart says that “more than half” of its do. Costco workers with coverage pay premiums that amount to less than 10 percent of the overall cost of their plans. It treats its employees well in the belief that a happier work environment will result in a more profitable company. “I just think people need to make a living wage with health benefits,” says [Costco CEO Craig] Jelinek. “It also puts more money back into the economy and creates a healthier country. It’s really that simple.”

In February, Jelinek set Costco’s convictions in ink, writing a public letter at the behest of Nader, urging Congress to increase the federal minimum wage for the first time since 2009. “We know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty,” he wrote.

... Costco’s constitutional thrift makes its generous pay and health packages all the more remarkable. About 4 percent of its workers, including those who give away samples and sell mobile phones, are part-time and employed by contractors, though Costco says it seeks to ensure they have above-industry-average pay. And while Walmart, Amazon, and others actively avoid unionization, Costco, while not exactly embracing it, is comfortable that the International Brotherhood of Teamsters represents about 15 percent of its U.S. employees. “They are philosophically much better than anyone else I have worked with,” says Rome Aloise, a Teamsters vice president.

...Many conscientious companies such as Costco are performing well financially. Over the last few years, Nordstrom (JWN), the Container Store, Sephora, REI, and Whole Foods Market (WFM), all of which are known for treating employees well, have outpaced rivals. “This is the lesson Costco teaches,” says Doug Stephens, founder of the consulting firm Retail Prophet and author of the forthcoming The Retail Revival. “You don’t have to be Nordstrom selling $1,200 suits in order to pay people a living wage. That is what Walmart has lost sight of. A lot of people working at Walmart go home and live below the poverty line. You expect that person to come in and develop a rapport with customers who may be spending more than that person is making in a week? You expect them to be civil and happy about that?”

So far, Costco and other retailers that invest in employees seem to be performing well because customers are willing to seek out a high-value experience. For those of us who have lots of options for where to shop, it's worth remembering that Costco and Walmart may both be big-box stores, but they treat employees differently.

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One difference between the two is where their business started. Costco started and remains in larger cities. Wal-mart
started in rural areas. If you look at more rural counties you find the average wage is lower, so that is the heritage of Wal-Mart, Bentonville and NW Ark in general was a relativly low
wage place. Wal-Mart eventually had to move to the larger areas as the middle areas (big enough to provide business for a Wal-Mart but not a major metro were used up.) For example From Kerrville Tx going west its about 250 miles to the next Wal-Mart on I-10. Or going north from Flagstaff on US 89, its 350 miles to the Next Wal-Mart in Richfield,UT. (Of course if you go West to Saint George or Cedar City 50 or so Miles from US 89 you can find one).
So for example what might the average wage in Richfield, Ut, Columbus,Tx, Clovis,NM, or even the Bentonville area be: I do know if you look at the Texas Almanac, you find wages in counties vary by 40-50% (with big cities, metros etc and counties with major oil being the high ones, ag counties tend to be low)

Does this suggest that a truly national chain can't really exist. Note that Sears in its heyday never built stores in small towns but rather had catalog merchants who were franchisees.

You cannot compare Wal-Mart with Costco. They are different. They target different customers. I shop at both. You may compare Sams Club with Costco. And in my opinion Costco is better in most items. Let the free market decide. Consumers will shop where they get what they want at the best price. The problem in the US is we talk about fair wages but are not willing to pay more for products to support these hard working employees or pay for local products. Put your money where your mouth is. Too many phony liberals out there preaching but not practicing.

Lyle, that's an interesting point about the two companies' different geographic histories. Higher urban costs of living is probably why several cities have minimum wages higher than the federal minimum, but it's still hard to support a family even on the higher minimums.

Here in DC, we're scheduled to get multiple Walmarts opening within the next few years, and the city council is considering a bill requiring large retailers (75,000 square feet of space, corporate parent with $1 billion+ in sales) to pay a living wage of $11.75/hour, indexed to inflation.

In Australia the minimum wage is double what it is in the US (and our currencies are about the same). It's one of those things where there's very little advantage to a business to go it alone, but a huge advantage to businesses if everyone does it, especially given that businesses who pay low wages also tend to cater to people to who earn low wages.

Think about it: for every one employee I have to pay more, how many of my customers are now *earning* more?

I'ts not a socialist plot - it makes good business sense. More disposable income in the economy means more economic activity, means more growth, means more profits in the log run.