Unger points out that Costco is thriving while Walmart has been suffering over the past few years. He suggests that Costco may be outperforming Walmart because it pays its employees a much, much higher wage than is available at Walmart, and better-paid employees are more efficient than poor, depressed employees.
"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 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?"
Perhaps happy workers create a better environment for shoppers than unhappy workers.
"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."
Brad Stone provided a profile of Costco CEO Craig Jelinek in Bloomberg Businessweek: Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World. Stone quotes Jelinek on Costco’s philosophy with respect to employees:
"In February, Jelinek set Costco’s convictions in ink, writing a public letter at the behest of [Ralph] Nader, urging Congress to increase the federal minimum wage for the first time since 2009. ‘We know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty’…."
Stone provides this background on wages and benefits.
When the economy stumbled, other retailers cut back on hours and jobs. Costco responded by giving its workers a raise.
Nelson Lichtenstein provides insight into the workforce Walmart strives for and what working conditions are like in his book The Retail Revolution: How Wal-Mart Created a Brave New World of Business.
A very small fraction of workers make it into a management track. For the others, it is to Walmart’s advantage for them to go away as soon as possible. There is no advantage to experience in Walmart jobs. They are constructed in such a way that any healthy individual can perform the tasks. The reason they focus on the types of people described above is because they want them to work for a while and then leave. There will always be someone else they can hire at entry level wages with no benefits.
Walmart’s treatment of its employees has straddled a fine line between mean spiritedness and criminality. Any number of law suits have demonstrated that Walmart encourages its managers to cheat employees by modifying time cards or by instructing them to punch out and then continue working. This is referred to as working "off-the-clock." If one is foolish enough to complain she can easily be rewarded with shortened hours or enough variable shifts to induce her to quit.
Walmart does not have to treat its employees this way. It does what it does because that is the way it believes workers should be treated. A study of Walmart’s wage structure by the Center for Labor Research and Education at the University of California at Berkeley concluded that Walmart could impose a $12 an hour minimum wage for its employees and cover the increased wages with a 1.1% increase in prices. Would mighty Walmart come tumbling down if prices went up 1.1%? Would anyone even notice if a 98 cent object suddenly cost 99 cents?
Economists like to argue that lower prices are always beneficial. Walmart arrives at low prices by creating a workforce that requires taxpayer support in the form of Medicaid, food stamps, Earned Income Tax Credits, and free lunches for school children in order to survive. That is a strange way to run an economy. It is a strange way to allow anyone to run a public company. Costco has demonstrated that such draconian employment practices are not necessary, and are probably counterproductive.
As the economy slowly improves, Costco is out performing it while Walmart is underperforming.
Perhaps there is some justice in the world—and some hope for the future.