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9/5/14, 10:00 AMWalmart Pays Workers Poorly And Sinks While Costco Pays Workers Well And Sails-Proof That You Get What You Pay For
Page 1 of 5http://www.forbes.com/sites/rickungar/2013/04/17/walmart-pays-worker…co-pays-workers-well-and-sails-proof-that-you-get-what-you-pay-for/
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OPINION (/OPINION) 4/17/2013 @ 10:49AM 273,285 views
Walmart Pays Workers PoorlyAnd Sinks While Costco PaysWorkers Well And Sails-Proof ThatYou Get What You Pay For
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A protest in Utah against Wal-Mart (Photo credit: Wikipedia)
Costco’s most recentquarterly earnings report(http://phx.corporate-ir.net/phoenix.zhtml?c=83830&p=irol-
newsArticle&ID=1794682&highlight=) reveals a fairlyhealthy eight percent rate of growth in year-on-yearsales—including a five percent rise in same store sales.What’s more, with membership fees rising from $459million in the same quarter last year to $528 millionthis year, it’s pretty clear that a significant number ofcustomers are moving over to the retailer to do theirdiscount shopping.
Meanwhile, Costco’s primary competitor, Walmart,saw an anemic 1.2 percent rise in sales, while othercompetitors such as J.C. Penny and Target(/companies/target/) TGT -0.66% (/companies/target/)
experienced even greater disasters in their salesresults.
In an identical economy, how do we explain Costco’sgrowth vis-à-vis the failures over at Walmart?
Rick Ungar(http://www.forbes.com/sites/rickungar/)Contributor
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9/5/14, 10:00 AMWalmart Pays Workers Poorly And Sinks While Costco Pays Workers Well And Sails-Proof That You Get What You Pay For
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Rick UngarContributor(http://www.forbes.com/sites/rickungar/)
Here’s a crazy thought—might it have something to do with the fact thatCostco pays nearly all of its employees a decent living (well in excess of theminimum wage) while Wal-Mart continues to pay its workers as if theiremployees don’t actually need to eat more than once a week, live in anenclosed 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 employmentroster by 1.4 percent, even as they increased their store count by thirteenpercent.
The result?
Walmart service now pretty much sucks—andcustomers don’t like it.
Without enough employees to get the basic work of aretail operation done—and with those on site beingpaid a wage so low that it is difficult to expect much inthe way of pride or motivation—Wal-Martmerchandise remains stacked on pallets in thewarehouse rather than making it to the floor wherecustomers can find the products they want. At thesame time, check-out lines are painfully long andannoying as the overall shopping experiencecontinues to deteriorate.
One is left to wonder about the value of offering products at a lower price ifthose products are not on the shelves when the customer needs to buy them?
Per Bloomberg Businessweek (http://www.businessweek.com/articles/2013-03-28/walmart-faces-the-cost-of-cost-cutting-empty-shelves):
“Wal-Mart Stores (/companies/wal-mart-stores/) WMT +0.5% (/companies/wal-mart-stores/)
(WMT(http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=WMT)) has been cutting staff since the recession—and pallets ofmerchandise are piling up in its stockrooms as shelves go unfilled. In the pastfive years the world’s largest retailer added 455 U.S. Walmart stores, a 13percent increase, according to company filings in late January. In the sameperiod its total U.S. workforce, which includes employees at its Sam’s Clubwarehouse stores, dropped by about 20,000, or 1.4 percent.” The articlecontinues, “A thinly spread workforce has other consequences: longercheckout lines, less help throughout the store, and disorganization. Lastmonth, Walmart placed last among department and discount stores in theAmerican Customer Satisfaction Index, the sixth year in a row the companyhas either tied or taken the last spot. The dwindling level of customer servicecomes as Walmart has touted its in-store experience to lure financially
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9/5/14, 10:00 AMWalmart Pays Workers Poorly And Sinks While Costco Pays Workers Well And Sails-Proof That You Get What You Pay For
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Rick UngarContributor(http://www.forbes.com/sites/rickungar/)
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Rick UngarContributor(http://www.forbes.com/sites/rickungar/)
strained shoppers and to counter the threat from online rivals such asAmazon.com (/companies/amazon/) AMZN -0.88% (/companies/amazon/) (AMZN(http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=AMZN)).”
So, does paying an employee a living wage make a difference when it comes toprofits?
Harold Myerson writes in a terrific piece published intoday’s WashPo(http://www.washingtonpost.com/opinions/harold-meyerson-taking-the-service-out-of-the-service-sector/2013/04/16/b0a47efe-a6b6-11e2-8302-3c7e0ea97057_story.html)—
“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
(http://online.wsj.com/article/SB10001424127887324010704578414901710175648.html),the Wall Street (http://www.forbes.com/wall-street/) Journal reports, and amanagement webcast to franchise owners acknowledged that customerdissatisfaction is rising in part because “service is broken.” Myerson adds,“Some of the most successful retailers follow a different path. As MITmanagement professor Zeynep Ton argued in Harvard Business Review(http://hbr.org/2012/01/why-good-jobs-are-good-for-retailers) last year,Costco (http://www.huffingtonpost.com/2013/03/06/costco-ceo-minimum-wage-craig-jelinek_n_2818060.html) and Trader Joe’s pay their workers farmore than many of their competitors, offer their employees opportunities forpromotion and enjoy markedly lower worker turnover and far higher sales peremployee than their low-road counterparts. Sales per employee at Costco arenearly double that at Sam’s Club.(emphasis added)”
As the old saw goes, you get what you pay for. Costco pays their employees alivable wage and gets sales per employee at double what Walmart subsidiarySam’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 andconsider the potential upside of treating employees like human beings.
It might just prove to be good for business.
Contact Rick at [email protected](mailto:[email protected]) and follow me on Twitter(http://www.twitter.com/rickungar) and Facebook (/companies/facebook/)
9/5/14, 10:00 AMWalmart Pays Workers Poorly And Sinks While Costco Pays Workers Well And Sails-Proof That You Get What You Pay For
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9/5/14, 10:00 AMWalmart Pays Workers Poorly And Sinks While Costco Pays Workers Well And Sails-Proof That You Get What You Pay For
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