Costco: doing well by acting decently

CostcoLogo

Retail store chains face tough times because of the slow economy and competition from Amazon and other on-line sellers.  But Costco Wholesale’s sales are up, its profits are up and its stock price is up.

What’s noteworthy about Costco, according to Bloomberg Businessweek, is how well it treats its employees.   “If you treat customers with respect and employees with respect, good things will happen,” CEO Craig Jelinek told Bloomberg.

Costco is the second largest retail store chain in the United States, and is fast gaining on Wal-Mart, the largest.  Here are some facts and figures about the two chains.

  • Average hourly pay for Costco employees is $20.89 an hour, versus $12.67 for Wal-Mart.
  • 88 percent of Costco employees have company sponsored health insurance, in which they pay less than one-tenth of the cost of the premium.  Wal.Mart says “more than half” of its employees have health insurance.
  • CEO Craig Jeninek got a base salary of $650,000 a year, plus a $200,000 bonus, plus stock options worth $1.2 million.  Wal-Mart’s CEO got a base salary of $1.3 million , plus a $4.4 million cash bonus, plus $13.6 million in stock.
  • While Costco is doing well, Wal-Mart is in trouble
Costco's stores are no-frills

Costco’s stores are no-frills

Costco overall is a no-frills operation.  It has no public relations department, and Bloomberg reporters were able to talk to the CEO directly.  Costco does not hire managers out of business school.  Its managers are promoted from within.

Its prices, according to Bloomberg, are competitive with Amazon, which Costco managers see as its chief competitive threat.  Profit margins are thin.  About 80 percent of Costco’s gross profit comes from its annual membership fee.

Costco is not necessarily an exception, according to Bloomberg.  Nordstrom, The Container Store, Sephara, REI and Whole Foods Market, all know for treating employees well, are also doing well in the marketplace.  It is true that Amazon, which is not known for treating employees well, also is successful, but maybe they could still be profitable if they treated their warehouse workers better.

A lot of people assume that being callous toward people is always realistic and treating people decently is always naive, but Costco’s experience shows this isn’t so.  Treating employees as assets instead of costs can be good business price.  Bertrand Russell once wrote that if human beings all knew what was in their self-interest, most would be better people than they are and the world would be a better place.

Click on Costco CEO Craig Jelinek Leads the Cheapest, Happiest Company in the World for the Bloomberg Businessweek profile.

Click on Customers Flee Wal-Mart’s Empty Shelves for Target, Costco for a Bloomberg report on Wal-Mart’s problems.

Click on The secret of Costco’s success revealed!  (Hint: No MBAs need apply) for comment by Kathleen Geier in the Washington Monthly.

Click on Walmart Pays Workers Poorly and Sinks While Costco Pays Workers Well and Sails—Proof That You Get What You Pay For for comment by Rick Ungar in Forbes.  [Added 6/13/13]  Hat tip for the link to Ian Welsh.

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2 Responses to “Costco: doing well by acting decently”

  1. Anne Tanner Says:

    Actually, Costco does have a public relations department–its employees. I visited the local Costco for the first time recently and I was amazed by them–super-efficient, friendly, none of the “I’m bored to tears but I will deign to help you” attitude of department store clerks. Several urged me to join. As a former small business owner, I know how hard it is to generate that kind of enthusiasm in an employee.

    Like

  2. b-psycho Says:

    Amazon really isn’t all that profitable even while treating employees like crap. I’ve seen some places thought that their business model is really a long term long-shot that they can undermine other retailers enough to jack up prices & get monopoly profits later.

    Like

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