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Why Wal-Mart Doesn't Treat Employees As Well As Costco, and Why You Don't See a Difference in Service Anyway...

Like many of you, I've been to Costco.  Like all of you, I've been to Wal-Mart.  On the employee PR front, it's not hard to find articles that say Wal-Mart is terrible at taking care of their employees.  If you pay attention, you'll also see information that heaps a good amount of praise on Costco for their treatment of employees.

So what's the difference, and does it result in better service to you?   Let's examine pay, benefits and retention at Wal-Mart and Costco, then think about whether the customer sees the difference.  From Slate:

"It's not hard to make a case that Costco pays employees more. The most relevantCostco 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.

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 (no separate data for Sam's Club). But is this a business advantage for Costco? While some point 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).

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."

So, what conclusions do you draw from that, both as a HR/management pro, and a customer?  I'll take the HR side first and say the obvious - Costco looks like they care about retention, both with the aggressive pay plan and the benefits.  That's a good thing. 

The difference in pay (assuming good performance) is startling, and while it's difficult to know the details around their benefits, enough bad stuff is out regarding Wal-Mart and benefit eligibility/employer contributions that it's easy to call it vastly superior.

Here's where it starts to get tricky from a business perspective.  Costco has revenues per employee five times as high as Wal-Marts, but Wal-Mart's margins are twice as high as Costco.  Here's why Costco's revenue per employee is higher - they have a dramatically different staffing model, and don't need nearly as many employees.  When's the last time you saw a Costco employee before you hit the checkout line?  Never - and the "try this snack people" at every isle don't count, they're contractors. 

As a result, I can't say the customer service I get from Costco employees is significantly better than Wal-Mart's, because there isn't really any service.  They roll it in on palettes, I throw it in a big cart, then go to a checkout line modified to handle the big cart, usually without a "how are you today?" from the checkout person.  All the manpower is focused on checkout/security, and the overall staffing per store is as lean as possible, and much leaner than a typical Wal-Mart.

As a result, Costco has the ability to treat their employees well.  Wal-Mart could do some of the same, but will never catch up.  It's economics, they need too many people per store because they don't roll it in and display it on palettes. 

So, I'm glad Costco treats their employees that well, and I think it's obvious that the business model allows them to staff lean and treat the employees they do have well.  That's cool.

I just wish I could feel the retention as a customer, because I can't...

Update - found the following staffing analysis for staffing levels at Sam's Club vs. CostCo at staffing.org.   Still looking for normal WalMart metrics.  "In 2004, a well publicized study of Wal-Mart's Sam's Club and rival Costco compared the HR policies of the two companies. The particular significance of this study lay in the fiercely competitive low-end market they both serve, where strict cost-control, a Wal-Mart specialty, was thought to be essential to success. The comparison showed that despite much more generous salary and benefit packages, Sam's Club's cost of labor and overhead as a percent of sales was 17%, almost double Costco's 9%. Added to that, Costco's sales were much higher on a per-store basis as it generated nearly as much total revenue with one-third fewer employees. Consequently, profit per employee at Costco was $13,467 compared to only $11,039 at Sam's Club." 

Comments

Shopper

My Costco experience is much different. I regularly see employees throughout the floor. When asked a question, they know the answer or can quickly find it out (most carry a small radio). Additionally they know the "store" not just the "area" they are working. Much different from the often surly and ignorant (relative to the store's merchandise) Walmart staff.

There are other factors than just employee compensation that play into profit margin. Walmart does what it does very well, but they have made the decision to be the bottom feeder of retail. It's a niche as well.

I do shop both stores. However, I have a separate set of expectations for each.

Violetta

My experience has been different also. I have seen staff in Wal-Mart abused and demeaned right in front of customers. I find the Wal-Mart closest to me hires a very low-level of employee who probably shouldn't be working in customer service. The worst I ever saw, though, was Home Depot when Nardone was at the top. The employees were dehumanized and they were all so unhappy during that period. It appears to be different there now, but it could be the economy too. Would a universal health plan change any of this? Would a universal health plan make some employees decide they don't need to work for the man to get healthcare for their families?

KD

Shopper and Violetta -

Thanks for stopping by. I have a better experience at CostCo as well, mainly because it's not as cluttered. Can't say that I've ever seen anyone on the floor roaming to help though, and it's related to the staffing metrics I shared in the update. 1/3 less people than Sam's, I'm sure it's 1/2 the people of a normal super Wal-Mart.

Not a bad way to run a business, but limited service on the floor is built into their staffing model...

Thanks - KD

Ellie J

I've never been to Costco, but I shop WalMart all the time. I've always found there to be plenty of staff, and they are invariably polite and helpful, even friendly. I've had worse service at any other department store I've ever been in. Sure would like to know why, if WalMart staff are so taken advantage of. Maybe it's the local manager, but around here, WalMart employees are terrific!

Michael

I think it is only fair to compare apples to apples, thus the comparison between Costco and Sams Club is a valid one, whereas a comparison between Costco and Walmart is not. Your update is noted.

My wife and I have been customers of both Sams and Costco for over 15 years. We still maintain memberships with both wholesalers, even though we prefer Costco, simply because there are items we buy on a regular basis from Sam's that Costco does not carry.

Your comments about the scarcity of Costco employees are not correct in my experience. Every time I walk into a Costco store, I'm greeted at the door by an employee (who hits the little handheld clicker to count me in the day's customer tally), to whom I show my membership card. Immediately to the left of the entrance of our store is a counter, typically staffed by four employees, who handle memberships, returns, and general questions. Immediately to my right is the photo department, also staffed by employees. Just to their right is the optical department, also staffed by Costco employees. Across the store from the entrance is the pharmacy, you guessed it, also staffed by employees. On my way to the rear of the store, it is not unusual to pass at least one Costco employee on the floor. At the back of the store, the bakery, meat department, and deli are all staffed by Costco employees. Any one of these employees is available to answer your questions, regardless of the subject. My experience has been that, if they don't know the answer, they'll find somebody who does.

I know a few people who work for Costco, and they tell me that the importance of Member satisfaction is continually stressed by management. This is why I suspect it doesn't matter who you ask if you have a question -- they'll do what they can to find an answer for you, or get you the assistance you need.

Unlike your experience at the checkout, I'm always greeted by the checker, often by name. Regarding the check-out security process, this just makes good sense to keep their costs down. But Costco does not go to the same extent Sam's does. At Sam's it is policy to transfer everything in ones cart to another cart -- to insure nothing is missed -- but I can't help but feel sorry for the checker sometimes. Last time I was at Sam's, the checker had to transfer a 50lb bag of dogfood, a 38lb bucket of cat litter, and a 44lb bundle of charcoal brickettes. Those were the only items in the cart. I wouldn't want to have to arm-wrestle her. :)

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