The Costco Way

Businessweek.com (1/2/06) shoots another hole in the already porous conservative argument for keeping labor down. Costco Wholesale Corp. handily beat Wall Street expectations posting a 25% profit gain for 2004, 1st quarter. That Costco pays its worker much better than Wall-Mart Stores Inc puzzles Wall Street The market’s rewarding of Costco is a lesson for Wal-Martising advocates who applauded Wal-Mart’s practice of paying poverty-level wages and covering less than half its 1.2 mil. employees with health insurance. Costco’s high wage approach beats Wal-Mart’s counterpart-Sam’s Club at its own game. Good compensation motivates and retains good workers at Costco, 1/5 of who are unionized. Costco gets lower turnover (6% vs. 21% at Sam’s) and higher productivity. Costco’s 2004 profit per employee was $13647 v $11, 039 at Sam’s Club. Cheap labor policy turns out to be costly. The low-wage approach cuts into consumer spending and economic growth. Sam’s $11.52 hourly wage pales in comparison to Costco’s $15.97. Costco’s workers sell more: $7895/Sq.Ft. vs. $516 at Sam’s.