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 relevant 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."