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Sunday, July 17, 2005

Costco: The "Anti-Wal-Mart"

I've long testified on this blog to the joys of being a Costco shopper. Today The New York Times adds that it's also great to be a Costco employee -- so much so that the Wall Street analysts are complaining that the company is giving away too much money to its customers and workers. And yet its stock is outperforming the competition.

I love it.

Comments (19)

My mother, a third grade teacher in Reno, and I were at the Aloha Costco and started chatting with a manager while we in line. He asked what she did, and she said she was a teacher. "I was, too, until I found out I could make double the money here," he said. So true...

i worked at Costco in high school. They paid 2 dollars more an hour than any other job and they treated their employees with respect. This resulted in a very low turnover rate thus increasing the profitability of the company. When will wall street figure out that this formula can work. They also let a hungry high school boy eat samples on his break.

Are Costco employees union?
Maybe our teachers don't need a union.
Maybe our schools don't either?
Or our fire houses, police departments and other public service employers.

'Company Loyalty' - It's wonderful when it's honestly EARNED. But most 'companies' (read: people, vis-a-vis management) have no idea how to EARN it. And that's the sad lesson learned here.

Shelley - Most 'real jobs' with a college degree make more than teaching. Even 'teaching' english in Japan can pay better (in the bottom line) than a teaching job in the USA. And for that, I blame the teachers' union.

Are Costco employees union?

Typical union-hater, didn't even read the story, but has the "truth" for all of us.

As The Times reports, there are some Teamsters working at Costco. And they say it's their favorite company to deal with.

Like The Oregonian often follows the Tribune or Willamette Week, maybe the NYT followed NPR, which carried a similar report some months back, not quite this fleshed out in terms of business practices but as much so regarding how Costco treats its employees. Impossible not to note that in terms of the superior shopping store it has always been.

I recollect that it has been only in the last decade or two that "investors" were put at the front of the customer/employee/investor business equation. A lovely day when that proves backwards.

60 Minutes reported on this same story about a year ago...'s a nice story. And I hope it becomes a trend in the retail industry.

To be fair, Costco does screen their customers at a minimum level by making them pay a fee and loosely be associated with a decent employer to get membership. This way they can keep losses due to bad checks and credit card fees to a min. It may not sound like much of a bar to clear, but it does make a big diff.

With WalMart, you don't need a membership (that would be a tough sell to join that club!) and they do accept all cards and you don't need to buy 80 lbs of chicken necks at a shot. I don't know what Sams Club requires, but at least it would probably be easier for lower income types.

To be fair, Costco does screen their customers at a minimum level by making them pay a fee and loosely be associated with a decent employer to get membership. This way they can keep losses due to bad checks and credit card fees to a min. It may not sound like much of a bar to clear, but it does make a big diff.

With WalMart, you don't need a membership (that would be a tough sell to join that club!) and they do accept all cards and you don't need to buy 80 lbs of chicken necks at a shot. I don't know what Sams Club requires, but at least it would probably be easier for lower income types.

First of all. Costco doesn't "screen" members for employment status or any such nonsense. Anyone can walk in the door and get a membership. Anyone who is a serious shopper knows that the $35 membership will pay for itself on just one regularly purchased item. I have a wife and two young kids and regularly purchase coffee, milk, baby wipes, diapers, paper towels, TP, laundry detergent, dishwashing detergent, and a bunch of other things at costco. I save more than $35/year just on coffee or baby wipes alone by getting the kirkland brand.

Second, Sam's club is a carbon copy of Costco with the identical membership fees and floor layout. I currently live in Waco, TX and have a Sam's Club near by. The nearest Costcos are 1.5 hours away in Fort Worth, Arlington, and Austin. We used to have memberships at both clubs but we let the Sam's memberhip expire because they just can't keep up with Costco in the higher-end products. I drive to Fort Worth about twice a month, mostly just to go to Costco but I usually make it a trip with the kids to the science museum or zoo and hit Costco on the way home.

I guess you don't have Sam's Clubs out in Oregon yet. While they appear superficially to be just like a Costco on the inside, it's soon apparent that they are quite different in philosophy when you compare the house brands Kirkland Signature vs Member's Mark. When you buy Kirkland Signature you can almost always be assured of top quality at a great price. Our house is full of Kirkland Signature products. Member's Mark stuff from Sam's is very spotty. You really don't know what you are getting. The only Kirkland Signature product I have ever bought that didn't meet expecations is their new eggbeater products. They have a foul taste and aren't as good as the regular eggbeaters.

Oh, and no one has mentioned the best reason for shopping at Costco. They have the best return policy in the business.

Oh and by the way. As a former government employee I had GEICO auto insurance for at least 15 years with all the different safe driver discounts they offered. Every few years I shopped around and checked with State Farm and the others to see if they had better rates and they never did. Last month I got a mailing from Costco about their new auto insurance. Out of curiousity I filled out the form for a quote and it turns out that Costco's Auto insurance saves us $500/year over GEICO for our two cars, a 2003 Honda CR-V and a 2004 Toyota Sienna. Not bad for a $35 membership fee. What was previously an $796 semi-annual premium for both cars with GEICO has just dropped to $545 with Costco.

When I called GEICO to cancel they hemmed and hawed for a while but couldn't come close to matching.

I do love to see the folks out there praising capitalism to the heavens! Warms my heart. You'd almost think that Costco is a government-run entity aiming at providing the "right" quality of life to bunches of people. But -- shocking! -- it's a private company aiming at making money! And it's receiving praise for it!

I'm not entirely sure what the differences between Wal-Mart and Costco are -- I know there are some; and I also know there are a significant number of similarities (not least, what the stores look like from the outside). But if enough people like the commenters here prefer Costco to Wal-Mart (and if they are sufficiently substitutes for each other), Costco will win. In some markets. In other places, where Wal-Mart preferers out-shop the Costco-ites, Wal-Mart will prevail. Some places will have both; some neither. It's just astounding how relatively small groups of people can be satisfied by the market without governments stepping in to outlaw Wal-Mart or madate Costco.

Doesn't it seem like the better system is the decentralized one that treats all preferences as equal, that doesn't appeal to the notoriously abused "public interest" standard to make decisions for us, and which generates innovation after innovation that serves the actual "public interest" far better than any misguided urban plan ever could?

Kent's correct that in comparing stores, the proper comparison is between Costco & Sam's Club, not Costco & Wal-Mart. The article compares the stock prices and market shares of Costco & Wal-Mart b/c Wal-Mart is the company that owns Wal-Mart & Sam's Club stores (just to clarify for people who only live in Costco country). Having lived in both Costco & Sam's Club country, I can second that opinion about the superior quality of Costco products. Also, I haven't heard anything specifically about the way Sam's Club treats its employees, but I would presume it's the same as Wal-Mart (abysmal), since it's all the same company.

Exactly. The correct 'Northwest' comparison with Wal-Mart would be Fred Meyer not Costco. Wal-Mart and Sam's Clubs are completely different stores owned by the same parent company. They don't have much if any overlapping stock. For anyone who has been inside a Sam's Club it is a very eerie attempt to copy Costco down to the very last detail.

And to answer ragin red's question. Sam's has a reputation for treating its employees abysmally. Here in Texas there was a recent scandal related to Sam's locking its employees into the stores overnight to do cleaning and stocking and even when seriously injured emloyees couldn't leave because there was no supervisor present to unlock the doors. I'll see if I can gooogle up a link.

Wal-Mart and Sam's Clubs employee lock-in policies discussed here:

And the NYT piece followed on a piece in the FT earlier in the week, see:

What several commentators here seem to have missed is the chief difference between Wal-Mart and Costco as corporations; i.e. the disparity in attitude (and competition) each has in relation to top management vis-a-vis workers/employee/stakeholders.

While the Walton heirs sit in an obscenely high position near the top of the Forbes500, Costco Founder/CEO Jim Sinegal is nowhere to be found. He is also the lowest-paid CEO (in salary terms) of any Fortune500 company.

This is the approach most successful SMALL companies take, but very few BIG corporations.

Much has been written about the incredible disparity between CEO pay and that of average workers, but few companies do anything about it. A few years back, Ben & Jerry's (in pre-Unilever days) policy dictated that no employee could make more than 6x than another, resulting in some of the highest paid janitors in America, and crippling their search for an outside CEO. It was an absurd answer for a real problem.

Costco takes a reasonable middle ground and is highly successful because of it (it's also why there are few unionized stores in the group). Unlike Wal-Mart (and many other corporations) where the CEO puts own compensation first, shareholders (which usually includes the CEO chief among them) second, and employees and customers last!

Despite their "copycat" floor layout and product lines, that might be why Sam's Club is reluctant to take on Costco in existing markets. When it comes to human capital (and therefore, an overall superior shopping service), they simply can't compete...

If we could just get Costco to run our jails.

WalMart would do a great job running jails... since most of their customers look like they just got out of prison!

Costco has great benefits and pays 92% of the premium. Wal-Mart pays 66%.

They also start their employees at higher wages and give them regular pay raises. The average pay at Costco is around $17 per hour. The average pay at Wal-Mart stores (including Sam's Club) is a little over $9 per hour.

The annual turnover rate at Costco is 24%, with only a 6% turnover rate with employees who have worked there for over a year. The annual turnover rate at Wal-Mart is 50%.

The bottom line is that Costco treats employees better than Wal-Mart employees. So how do they make their money? Simple. Costco's low turnover rate shows that they have happy employees who are loyal to the company and thus have a higher productivity rate. If you don't believe me, google it. Also, Jim Senegal (CEO of Costco) only takes 10 times the pay of his typical employee, only $350,000 a year, pretty low for a CEO. Lee Scott (CEO of Wal-Mart) takes $5.3 million every year.

We live in a society where the rich get richer and the poor get poorer. Now I believed that was true about every company until now. Costco's CEO makes more money, as he should, than the average employee, but he's not making millions each year. He lets his employees make LIVABLE wages (something Wal-Mart has not discovered), can still offer customers low prices on great products, and has stocks which are still rising. They have 5 rules of importance in this order:
1. Obey the law
2. Take care of our customers
3. Take care of our employees
4. Take care of our vendors
5. Take care of our shareholders

Do they do all of these? Yes. But they don't sacrifice their employees moral to do this. Most companies are just concerned about their shareholders. Costco IS concerned about their shareholders but are MORE concerned with their employees and customers. They satisfy all, not just some. Costco is the better choice. Do the research and you'll see.


Listed below are links to weblogs that reference Costco: The "Anti-Wal-Mart":

» Blue works! from Preemptive Karma
(via Jack Bog) The New York Times has discovered what we in Oregon have known all along: Corporations don't have to pay their workers a pittance and deny them benefits in order to making a screaming profit: Combining high quality with stunningly low pr... [Read More]

» Blue works! from Democrats & Liberals:
(via Jack Bog) The New York Times has discovered what we in Oregon have known all along: Corporations don't have to pay their workers a pittance and deny them benefits in order to making a screaming profit:... [Read More]


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