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The Cost of Costco

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I've just returned from my hometown of Seattle, where, squeezed between golf and visiting my Nana, my family took its one can't-miss trip: to Costco. This time, I piled the shopping cart with Balance bars, tins of Altoids, razorblades, slippers, Swiffer sheets, a 22-pack of Gladware, oranges, sponges, a Sinatra CD--there's no forecasting what spoils Costco might hold. True, I live in New York, and thus had to check a bag stuffed with Costco purchases on my cross-country flight. Inefficient? Yes, yes it is. But I maintain I save money shopping at Costco, even though I invariably spent a few hundred dollars.

One thing that keeps me coming back is how upbeat the employees seem. Part of this is the fair approach to labor that founder Jim Sinegal takes (that's why he's one of our Entrepreneurs We Love). He pays the warehouse workers an average of $16 an hour--a happy contrast to Wal-Mart, where the average wage is $9.68 an hour. Costco also covers 92 % of its workers' healthcare costs. The reward: its turnover is 1/3 the industry average, and 1/2 of Wal-Mart's.

It's even won the favor of labor unions, a difficult group to please if ever there was one. This article from the Labor Research Association makes an interesting point. Wal-Mart CEO Lee Scott said critics expect Wal-Mart to play the role GM played after World War II in establishing a reasonably paid middle class. Retail, said Scott, does not perform that role in the economy or any country. The LRA story points out that, in fact, Costco manages to pay middle-class wages and remain highly profitable.

Wall Street grumbles that Costco is too generous with its employees. Analysts polled by Yahoo! Finance are rating Costco's stock neutral, versus a buy for Wal-Mart. Costco's market cap is $22.14 billion; Wal-Mart's, $209.39 billion. Still, in June, Costco's same-store sales rose 9 % (nudged upward, no doubt, by my 300-pack of garbage bags); Wal-Mart's same-store sales have been sputtering along below 3 % all year, and rose to 4.5 % last month.

I wonder where Inc. readers fall on the Wal-Mart/Costco continuum. What's better for your company: focusing on profits, or focusing on how you're treating your employees? Which model will be the norm in the future?


Last updated: Jul 15, 2005




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