Costco Shows That You Can Build A Thriving Business With One Simple Trick (Pay Your Workers)
Costco has revealed the “secret weapon” that continues to drive its business model, according to a Wall Street Journal (WSJ) report released Thursday — and it is as simple as paying its long-term workers well.
Costco ranks highly among retailers in wages for hourly workers, with top pay for roles such as cashiers at $32.90 per hour, according to the report. Its base hourly rate of $19.50 remains the highest base floor among large non-specialty retailers in the United States.
Other similar retailers fall behind Costco, especially for non-skilled positions. Walmart’s average hourly pay for field associates is $18.25, while its average hourly pay for supply chain associates is $27, according to its website. Lowe’s pays most hourly workers between $15 and $24, with some Pro Customer Service specialists earning up to $28. Home Depot’s hourly pay generally ranges from $15 to $26. Its highest hourly earners, skilled Pro Desk Associates, can earn up to $32.
Costco has offered higher hourly wages for years to limit turnover and foster stable growth, the WSJ report said. Its founders hoped these efforts would reduce training costs for new hires and result in superior customer service. Turnover after a year of employment at the company remains at seven percent — small compared to a retail industry that averaged 60 percent turnover for frontline workers in 2022, according to a study performed by the McKinsey consulting firm. (RELATED: South Korea’s Liberal Government Creates New Headaches For US Business)
Costco’s investment comes at a time when the average lifespan of a Standard & Poor’s 500 company — an index that includes the 500 largest and most influential companies in the country — has dropped to just 18 years, according to another study by McKinsey and cited by IMB. This is a 43-year decrease from the projected 61-year lifespan of an S&P 500 in 1958, the study added. McKinsey estimated that 75 percent of companies currently on this list will have vanished by 2027.
Costco appears to be bucking this trend, with annual sales that have increased for almost two decades. The retailer’s stock has also grown by over 2,000 percent since a low of approximately $40 per share after the 2008 recession, climbing to around $953 per share Wednesday, according to the WSJ report. According to the Los Angeles Times, only about a third of Costco’s sales come from imported goods.
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Gary Millerchip, the retailer’s chief financial officer, said that the retailer’s business model of long-tenured workers and steady growth is cheaper in the long term. This investment keeps workers around for a long time and provides “a pipeline of employees coming behind that group that also are building that level of experience” when they finally retire, Millerchip said. It also results in “many thousands” of Costco’s U.S. hourly workers having accumulated over $1 million in their 401(k) accounts.
Tony Barzar, a typical long-tenured worker at a Costco in Tucson, Arizona, earns $32.90 an hour as a Costco cashier, according to WSJ. Barzar began working for Costco in 1993, when the company bought out the membership warehouse he worked at. Now, his retirement savings have grown to over $1 million. Costco insurance, part of the company’s benefit program, has also covered three surgeries his wife had to undergo for brain cancer.
A 2023 study conducted by consulting firm McKinsey confirms that happier employees tend to remain with a company longer and lead to happier customers. The study, which focused on customer and employee reviews of over 100 retailers, revealed that retailers with the top 25 percent of highest employee-satisfaction scores were over twice as likely to also be in the top 25 percent of customer-satisfaction scores.
The consulting firm estimated that a frontline employee deciding to leave costs a company an average of $10,000. “Multiplied over thousands of employees and several years, the drag on a retailer’s bottom line can be significant,” the firm said. “Retail leaders, and their investors, will benefit from treating employee attrition issues with the same intensity as they do other customer-facing opportunities.”
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