Wal-Mart and Costco employee pay saga drones on following State of the Union address.
After the hair dryer-like drone of last night’s state of the union address featuring the prez praising Costco, a Facebook friend reposted one of those stupid CNN articles quoting an MIT professor. The professor noted how Costco’s higher employee pay yields superior results to Wal-Mart.
Let’s count the ways this article gets it wrong.
First, let’s do like the article and pretend that these people and companies are in any way comparable (Numbers based on last completed fiscal year):
- Wal-Mart’s total revenue was $469.2 million, versus $102.9 million for Costco. Winner Wal-Mart.
- Wal-Mart’s margin was 3.6% versus 1.9% for Costco. Winner Wal-Mart.
- Who does more for employees? Wal Mart employs 1.3 million people in the U.S. alone. Costco: 184,000 worldwide.
Will Costco absorb all comers from Wal-Mart for the higher wages? How about Costco and Wendy’s combined? Wendy’s had 44,000 employees at the last fiscal year end. It looks like Wal Mart does more for over 1 million people in the U.S. alone than Costco and Wendy’s do in the entire world combined.
But, you say:
“According to Ton’s research, sales per employee at Costco were almost double those at Sam’s Club, its direct warehouse competitor owned by Wal-Mart.”
Sam’s margin was about 3.5%. Winner: Wal-Mart.
How is this for a moral argument:
If my child’s education, family’s medical care, retirement or other important things that cost money and are related to investments and financial planning, Costco is hurting me and Wal-Mart is helping. Wal-Mart’s rate of stock price growth is lagging Costco, but Costco is not nearly as big as Wal Mart. When growth stalls and the company matures, watch out. You will see its costs get in line with revenues quickly. Look at the volatility and ask if you would have liked to have been a Costco shareholder in March 2009 or
In addition, could something else account for Costco’s doubling of Wal Mart’s stock performance?
WMT’s dividend yield (2.5%) is more than twice that of Costco (1.1%). WMT may be choppy, but in a much narrower range, and it pays a larger dividend in dollars per share and yield.
The people who work there are free to leave. Your disapproval of their choice of employment may raise another moral argument.
As to the impoverished workforce, Wal Mart gets dozens or hundreds of applications for every open position. Why would someone sign up to be impoverished? Furthermore, Wal Mart hires people that others (including Costco) won’t touch and provides them an entry into the workforce that is unavailable elsewhere. In addition, Wal Mart promotes from within, giving people the chance to move up the ranks and gain experience that companies value, providing for lateral movement as well. Price their labor out of the market, and they don’t go to Costco. They go unemployed.
If the MIT guy is so confident in his conclusion, he could open his own store and put Wal Mart out of business. We won’t hold our breath waiting.