Costco: Good Pay = Good Business

Costco Sees Value in Higher Pay – “We pay better than the supermarkets, and we pay much better than Wal-Mart,” Sinegal says. “That’s not altruism,” he continues. “It’s good business.” The numbers seem to back him up. Costco’s labor costs amount to 7% of its $42 billion in annual sales, a key industry yardstick. By comparison, Wal-Mart Stores Inc.’s cost of labor stands at about 12% of its $244 billion in revenue, while the same figure for the supermarket firms comes in at about 16%.

It’s nice to see a reminder that cutting your costs to generate profits is one of only several possible business strategies. Another one, which I’m pleased to see Costco following is that you can invest in your employees so that your company is composed of better people than the competition. All it takes is one clever person in your competition to come up with a etter product to undercut your IP or design benefits, but if you consistently have the better people working at your company, you are more likely to be the leaders and ahead of your curve.

I’m always surprised at how little companies are willing to pay their front-line people: cashiers, sales clerks, telephone people, and yet how much they are willing to spend fixing problems that those people could prevent. Issues like shrink, customer dissatisfaction, and poor service are issues that happy well motivated and empowered individuals will solve themselves. So why is it that so many companies cut corners on wages and employees but are more than willing to spend on “plugging the dikes” afterwards?

I wish Costco well, and hope that their experience with their employees will serve as a solid example to the rest of the industry. My favorite quote is:

Meanwhile, Costco has received a boost from the labor dispute at the California supermarkets. Galanti reckons that Costco is picking up an extra $40 million a month in sales because of the pickets in front of Ralphs, Albertsons, Vons and Pavilions stores.