Pax on both houses: Two Corporate Cultures: Walmart Compared To Costco

Friday, July 12, 2013

Two Corporate Cultures: Walmart Compared To Costco

How Walmart and Costco Compare
http://csinvesting.org/2013/08/30/case-study-on-business-models-wal-mart-vs-costco/

Walmart Pays Workers Poorly And Sinks.
Costco Pays Workers Well And Sails. You
Get What You Pay For.

Costco’s most recent quarterly earnings report reveals a fairly healthy eight percent rate of growth in year-on-year sales—including a five percent rise in same store sales. What’s more, with membership fees rising from $459 million in the same quarter last year to $528 million this year, it’s pretty clear that a significant number of customers are moving over to the retailer to do their discount shopping.

Meanwhile, Costco’s primary competitor, Walmart, saw an anemic 1.2 percent rise in sales, while other competitors such as J.C. Penny and Target TGT -0.01%experienced even greater disasters in their sales results.

In an identical economy, how do we explain Costco’s growth vis-à-vis the failures over at Walmart?

Here’s a crazy thought—might it have something to do with the fact that Costco pays nearly all of its employees a decent living (well in excess of the minimum wage) while Wal-Mart continues to pay its workers as if their employees don’t actually need to eat more than once a week, live in an enclosed space and, on occasion, take their kids to see a doctor?

And just in case the occasional Walmart employee finds a way to squeak by, the company has sought to put an end to that by cutting their employment roster by 1.4 percent, even as they increased their store count by thirteen percent.

The result?

Walmart service now pretty much sucks—and customers don’t like it.

Without enough employees to get the basic work of a retail operation done—and with those on site being paid a wage so low that it is difficult to expect much in the way of pride or motivation—Wal-Mart merchandise remains stacked on pallets in the warehouse rather than making it to the floor where customers can find the products they want. At the same time, check-out lines are painfully long and annoying as the overall shopping experience continues to deteriorate.

One is left to wonder about the value of offering products at a lower price if those products are not on the shelves when the customer needs to buy them?

Per Bloomberg Businessweek:

“Wal-Mart Stores has been cutting staff since the recession—and pallets of merchandise are piling up in its stockrooms as shelves go unfilled. In the past five years the world’s largest retailer added 455 U.S. Walmart stores, a 13 percent increase, according to company filings in late January. In the same period its total U.S. workforce, which includes employees at its Sam’s Club warehouse stores, dropped by about 20,000, or 1.4 percent.” The article continues, “A thinly spread workforce has other consequences: longer checkout lines, less help throughout the store, and disorganization. Last month, Walmart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company has either tied or taken the last spot. The dwindling level of customer service comes as Walmart has touted its in-store experience to lure financially strained shoppers and to counter the threat from online rivals such as Amazon.com.”

So, does paying an employee a living wage make a difference when it comes to profits?

Harold Myerson writes in a terrific piece published in today’s WashPo—

“One lesson that emerges from the experience of low-end retailers is that putting workers in crummy, low-wage jobs tends to yield crummy service as well. McDonald’s earnings have fallen, the Wall Street Journal reports, and a management webcast to franchise owners acknowledged that customer dissatisfaction is rising in part because “service is broken.” Myerson adds, “Some of the most successful retailers follow a different path. As MIT management professor Zeynep Ton argued in Harvard Business Review last year, Costco and Trader Joe’s pay their workers far more than many of their competitors, offer their employees opportunities for promotion and enjoy markedly lower worker turnover and far higher sales per employee than their low-road counterparts. Sales per employee at Costco are nearly double that at Sam’s Club.(emphasis added)”

As the old saw goes, you get what you pay for. Costco pays their employees a livable wage and gets sales per employee at double what Walmart subsidiary Sam’s Club gets from their employees who work for lousy pay.

Maybe the time has come for Wal-Mart to take a lesson from Costco and consider the potential upside of treating employees like human beings.

It might just prove to be good for business.

Contact Rick Ungar at thepolicypage@gmail.com

"Two Corporate Cultures: WalMart Compared To Costco"

http://paxonbothhouses.blogspot.com/2013/07/how-walmart-and-costco-compare-head-to.html

"Tea Party Says Don't Buy From Costco"

http://paxonbothhouses.blogspot.com/2012/08/tea-party-says-dont-buy-from-costco.html

"Happy Workers, Richer Companies"

http://paxonbothhouses.blogspot.com/2014/07/happy-workers-richer-companies.html

Five Myths About Walmart

http://www.washingtonpost.com/opinions/five-myths-about-wal-mart/2013/07/12/59bcb04a-ea39-11e2-a301-ea5a8116d211_story_1.html

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donations between both major parties with the lion's share donated to The
Republican Party. This cynical, polity-rotting calculus is designed to favor business-
friendly Republicans while placing all politicians in debt peonage.

Costco Co-Founder James Sinegal Speaks At 2012 Democratic National Conventionhttps://www.youtube.com/watch?v=CBqQ_cVUZ5Q
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