Wal-Mart’s legendary obsession with cost containment shows up in countless ways, including aggressive control of employee benefits and wages. Managing labor costs isn’t a crazy idea, of course. But stingy pay and benefits don’t necessarily translate into lower costs in the long run.
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In return for its generous wages and benefits, Costco gets one of the most loyal and productive workforces in all of retailing’and, probably not coincidentally, the lowest shrinkage (employee theft) figures in the industry. While Sam’s Club and Costco generated $37 billion and $43 billion, respectively, in U.S. sales last year, Costco did it with 38% fewer employees—admittedly, in part by selling to higher-income shoppers and offering more high-end goods. As a result, Costco generated $21,805 in U.S. operating profit per hourly employee, compared with $11,615 at Sam’s Club. Costco’s stable, productive workforce more than offsets its higher costs.
These figures challenge the common assumption that labor rates equal labor costs. Costco’s approach shows that when it comes to wages and benefits, a cost-leadership strategy need not be a race to the bottom.
Pay your people well. It will save you money.
