Will Costco’s new $15 minimum wage hurt or benefit the chain?

Discussion
Photo: Getty Images
Mar 11, 2019
Tom Ryan

Last June, Costco raised its hourly base wage by a buck to $14. Last week, the company jacked base pay up again to $15.

According to The Seattle Times, minimum pay increased from $14 to $15 for stockers and other “service assistants” and from $14.50 to $15.50 for cashiers and other “service clerks.” Approximately 90 percent of Costco’s employees are hourly workers, and the average pay is $23.

On the warehouse club’s quarterly conference call with analysts last Thursday, Richard Galanti, Costco CFO, also announced wage increases for supervisors and the introduction of paid parental leave for all hourly workers as part of a new three-year “employee agreement.”

Collectively, the new wage hikes will negatively impact the company’s SG&A expense by three to four basis points over the next four quarters. That’s on top of the ongoing seven to eight basis point impact of last year’s wage increase that will anniversary on June 11.

Despite the wage pressures, Costco was able to reduce its SG&A as a percent of sales in its latest quarter by two basis points. Earnings in the period rose 26.8 percent, well above Wall Street’s consensus target, as comps in the U.S. jumped 7.2 percent.

Last June’s pay hike was partly designed to share some of the savings from the federal tax reform with Costco’s more than 130,000 U.S. employees. The company is increasing wages at a time when unemployment remains at its lowest rate since the late 1960s. The arrival of newer on-demand businesses such as Uber as well as improved pay from traditional retailers has heightened competition for workers.

Amazon, Target and Walmart have all raised minimum wages in the U.S. over the last year — Walmart is currently at $11 and Amazon, $15. Target is at $12 and set to hit $15 next year.

Costco remains ranked nationally as one of the top retail employers, with its pay and benefits often called out. A new survey from Glassdoor shows the warehouse club ranking eighth among Gen Z employees. Still, The Seattle Times found a few employees at its Seattle corporate headquarter grumbling that the pay increases have been behind local cost of living increases.

DISCUSSION QUESTIONS: Do you think it is important for Costco to remain a step above its competitors in terms of compensation and benefits? What role have employee relations played in Costco’s success?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Costco remains a beacon of good Karma in the U.S. retail landscape."
"In the end, this is very positive for all retail employees as Wall Street will likely price in this “new normal” of labor costs and reduce the negative impact on share prices."
"Note: one of the ways that Costco is able to pay these higher wages is because of the savings on reduced turnover and training cost."

Join the Discussion!

27 Comments on "Will Costco’s new $15 minimum wage hurt or benefit the chain?"


Sort by:   newest | oldest | most voted
Tom Dougherty
BrainTrust

Of course it is to Costco’s benefit and is in keeping with its brand.

Paula Rosenblum
BrainTrust

Costco remains a beacon of good Karma in the U.S. retail landscape.

While “The Street” pummeled the company for years over its positive treatment of employees, the company’s success tells the tale: happy employees make for happy customers. We can see Walmart and McDonald’s at least talking the “we love our employees” talk, and raising wages, though not to Costco’s levels.

Our data consistently shows retailers recognize the importance of knowledgeable, friendly employees to their retailing success, but Costco also walks the walk.

I think the company should carry on at being the best place to work in retail.

Bob Amster
BrainTrust

It is important to stay a step ahead, and Costco does that. I don’t know what Costco can do wrong today. The management just always seems to think right …

Mohamed Amer
BrainTrust
Mohamed Amer
Independent Board Member, Investor and Startup Advisor
7 months 8 days ago

Costco has a well-deserved reputation as a great company to work for — retailer or otherwise. The company culture values the human equation while not shying away from investing into the right technologies that help differentiate the company and improve productivity.

Costco has correctly identified the future as one where technology will be a great enabler, and in their operational environment that only heightens the delivered value of their store personnel – from restocking shelves to cashiering and membership services. In an increasingly tight labor market, Costco is making sure they get the cream of the crop so they can execute on their winning strategy.

Mark Heckman
BrainTrust

Costco, unlike Whole Foods, who felt the need to slash shifts after giving their associates a $15 minimum wage, stands a much better chance of allowing their associates to keep their hours, given their business model. Given their limited number of SKUs and their high average transaction sizes, Costco is clearly banking on keeping the best available associates on board, while continuing to hone in on additional efficiencies to keep SG&A expenses from skyrocketing. With retailers, whose labor productivity is not nearly as high as Costco, (Whole Foods, et al) raising wages too dramatically, too quickly will almost assuredly lead to layoffs, hour cuts, and even higher prices to offset the expense.

Dave Bruno
BrainTrust

In this era where experiences matter so much, happy, motivated employees are a critical part of any store strategy. Costco continues to foster a culture of ownership and shared success with store associates, and their results validate their approach.

Cathy Hotka
BrainTrust

Treating store associates with respect and paying them a living wage is important both for Costco and for other retailers. Happy, loyal employees minimize hiring costs and enhance productivity. Let’s hope that many others follow suit.

Jeff Sward
BrainTrust

This isn’t just appropriate and generous, it’s smart. Costco has a habit of smart decisions. Sharing the savings of tax cuts was the whole point. Costco once again proves to be a great corporate citizen.

Ed Rosenbaum
BrainTrust

Give them credit. They bit the bullet earlier than the competition. Yes, it hits their numbers now; but increased sales volume will more than make up for it. As will the plus side of goodwill.

Doug Garnett
BrainTrust

Why is it so hard to understand the value of a move like this? Because businesses and investors worship efficiency while ignoring effectiveness.

Every time I visit Costco I see the effect of employees who believe they are treated right. They are engaged. They take actions. They take responsibility. And within their parameters, they make things happen for customers.

It’s a welcome relief from stores where managers treat employees as the enemy — or a necessary evil to be kept under control.

I continue my mantra that standards, ISO 9xxx and other misguided “quality” efforts are to blame. If you need to mount regular surveys on your receipts to gauge “satisfaction” then your executives are out of touch with the store — and no “data” can fix that. Yet, that’s exactly what stores do using the justification of the ISO standards.

Ian Percy
BrainTrust

Great comment Doug — but that last paragraph was the highlight! Brilliant insight that should be a RetailWire topic on its own.

Casey Golden
BrainTrust
7 months 7 days ago

On point! “Efficiency while ignoring effectiveness” agreed, it is not productive and often does not affect the bottom line in a meaningful way. Lack of effectiveness stacks up until there is a new efficiency mess to throw money at.

Ian Percy
BrainTrust

The answer to the first question is easy — YES. Costco is a step above its competitors in every other way so frankly, it would be foolish for it to do anything else in compensating its employees.

On the second question regarding employee relations – at least their relationships to customers – it could be better. And I say that as someone who deserves a designated parking spot at Costco. It’s hard to find someone who can tell you where to find a certain cheese since, for some reason, all the cheeses are not displayed in the same area. A bigger issue is why more check-out lanes aren’t open when there are 10 people standing in line waiting to give Costco their money.

And one other thing — if Canadian Costco has poutine fries, why not in Scottsdale?

So Costco isn’t perfect. But it is light years ahead of most everyone else.

Dick Seesel
BrainTrust

If Costco wants to maintain its “best in class” reputation among retail workplaces, raising its minimum wage is a no-brainer. It doesn’t come without cost, but the cost of inaction (employee turnover etc.) is probably just as high.

Ken Morris
BrainTrust
Ken Morris
Retail industry thought leader
7 months 8 days ago

Costco pays a fair wage and has created a cult-like following among their employees and customers. It is critical to their success to maintain the culture that has fostered this. Customers want to shop where they know the employees are treated with dignity and respect and where they know their money is being reinvested in the community where they shop. Membership is where stores like Costco are able to thrive — everything else is a loss leader.

Peter Charness
BrainTrust

They get the best employees and continue to enhance their in-store experience. Good formula.

Mel Kleiman
BrainTrust

To be the best you need to have the best people working for you especially in the world of retail and Costco continues to prove the power of this statement.

As I say in my presentation on retail hiring, “It you beat your competition to the best employees, those employees will help you beat the competition.” Or a quote that someone attributed to Sam Walton, “The most important decision a manager makes every day is who he allows in the door to help him take care of the customer.”

Final note: one of the ways that Costco is able to pay these higher wages is because of the savings on reduced turnover and training cost.

Ryan Mathews
BrainTrust

This makes perfect sense for Costco. Good for them for realizing the importance of their most important asset — the women and men who directly interface with customers. More retailers could benefit from this lesson.

Larry Corda
Guest

This is a great move! Higher wages will attract and retain better employees, improve productivity, lower training expenses by having a lower turnover rate and improve the customer in-store experience, To be successful, brick and mortar stores have to invest in employees just like they must invest in technology.

Mike Osorio
BrainTrust

For its entire existence, a core piece of Costco’s employer value proposition has been superior wages and benefits. It is certainly important for them to continue to lead if they want to retain this reputation. The irony is that Costco’s leadership in this area is a contributing factor of the now-popular notion of a “living wage,” and often used in the drive for a $15 minimum wage.

Now that it has become important for all large retailers to prove they recognize their role in driving livable wages (or not), the Walmarts, Targets and Amazons of the world are now increasing the price for Costco to retain their leadership position.

In the end, this is very positive for all retail employees as Wall Street will likely price in this “new normal” of labor costs and reduce the negative impact on share prices, thus enabling more retailers to provide a living wage.

Lee Peterson
BrainTrust

Well, with their results lately, sure looks like they can afford to do this, and as we all know, nothing makes a company greater than when the team is happy. They will also attract better talent who might normally have gone to work in a mall or office somewhere. To say nothing about doing the right thing in terms of a living wage. Bravo, good move all around. I’d bet the numbers get even better.

Craig Sundstrom
Guest

Yes. A lot. I think this will be a rare RW topic where we’ll see near unanimity in the answers.

Ricardo Belmar
BrainTrust

Costco continues to serve as the proof point that if you treat your employees well, they, in turn, treat your customers better, and the sales flow upward from there! Costco has every reason to continue to act this way in support of their employees — their results speak for themselves. Other retailers would do well to look closely at this example and learn from it.

Cate Trotter
BrainTrust

There’s always plenty of talk in retail about the importance of staff and what they add to the store experience, yet not always a lot of evidence of action being taken to improve conditions and retain staff. It’s great to see Costco constantly thinking like this and passing on savings. It definitely presents the company as someone you want to work for. Actions speak louder than words and Costco is drowning out a lot of others at present.

Casey Golden
BrainTrust
7 months 7 days ago

The Costco family is incredible! I have no doubt that continuing to focus on employee satisfaction will maintain SG&A gains, reduce turn-over and drive long-term sustainability with consistent quality standards. When you make $15.00/hr stability is key for associates.

At the end of the day, companies with the best people and most efficient administrative processes will win. Seamless will be the essential requirement for this sector, but special service will set them apart from Amazon, Walmart, Target, Jet, and so on.

When we pay for a “membership,” consumer expectations change. When your employees can’t afford to split a one bedroom apartment within an hour commute from work, you’re not running a strong enough business. Every company should be improving their supply chain to ensure they can pay their employees a living wage. Standards of excellence cost less in the long-run.

Christopher P. Ramey
BrainTrust

Kudos to Costco for managing their business in such a way they can afford to pay their first class retail employees more. It helps when your sales per employee is high, and you provide zero to no service.

I have difficulty comparing Costco against competitors. Wait, they have no competitors. My guess is the number of individuals with both a Sam’s Club membership and a Costco membership is low.

Secondly, Costco has almost no service. You buy the size of the steaks already cut or go to Kroger; same for every product. The only reason an employee may be on the sales floor is because they’re stocking the floor. Or they work for a manufacturer who wants you to try and buy their product.

I’m Costco fan. But, it’s a different business model and difficult to compare against most other retailers.

Brent Biddulph
BrainTrust

As a Costco member since 1997, would be hard pressed to point to a single “poor customer experience” moment in the past 20+ years. Perhaps, because taking care of their associates has been a core principal and cultural ethos since the inception. One of the few retailers that has always viewed their associates as assets, versus “labor,” and why so many of them stick around for years, even decades. Hard to imagine that the majority of front line associates weren’t already at/above the $15/hr wage, not to mention industry leading benefits for all.

wpDiscuz
Braintrust
"Costco remains a beacon of good Karma in the U.S. retail landscape."
"In the end, this is very positive for all retail employees as Wall Street will likely price in this “new normal” of labor costs and reduce the negative impact on share prices."
"Note: one of the ways that Costco is able to pay these higher wages is because of the savings on reduced turnover and training cost."

Take Our Instant Poll

How important is it for Costco to remain a step above competitors in terms of compensation and benefits?

View Results

Loading ... Loading ...