It Happened to Me

Costco vs. Wal-Mart

[via Fark]

Okay: I’ll admit that during my move, I bought some replacement stuff at Wal-Mart. I didn’t want to go through the hassle of buying a Costco membership just yet and I needed a good deal on a few hundred bucks’ worth of replacement items such as a microwave oven (my old place had one built in, my new one doesn’t), a few replacement pots and pans to tide me over until the wedding presents come in, some closet organizers, a new king size comforter, and so on. I’m trying to maximize my dollar, especially in light of the money I spent on movers and my newly-doubled rent (at least until Wendy is eligible to work here).

Shopping at Wal-Mart is something I try not to do often, as they treat almost everyone — customers, employees and even their own suppliers — like mere links in a “value chain”. The only true human beings in the system are its shareholders; the rest of us are merely there to contribute to the share price.

(I could’ve saved on money by getting a bunch of friends to help for “free”, but that invariably leads to furniture damage, takes longer and is hard to do in the middle of a Wednesday.)

Costco, on the other hand, does a much better job. The staff are generally nicer, the selection of stuff is generally better, and the employees are considerably more helpful, probably because they’re better paid. So much better paid (42% more than Sam’s Club employees), that some Wall Street analysts are annoyed.

From a New York Times profile on Jim Sinegal, Costco’s CEO:

Combining high quality with stunningly low prices, the shirts appeal to upscale customers — and epitomize why some retail analysts say Sinegal just might be America’s shrewdest merchant since Sam Walton, the founder of Wal-Mart.

But not everyone is happy with Costco’s business strategy. Some Wall Street analysts assert that Sinegal is overly generous not only to Costco’s customers but to its workers as well.

Costco’s average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Wal-Mart’s Sam’s Club. And Costco’s health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco “it’s better to be an employee or a customer than a shareholder.”

A quick note to parents: If you ask your kid what s/he wants to be when s/he grows up, and s/he replies “An investment analyst!”, feel free to smack them really hard and then say “That was from Uncle Joey, who’d rather you actually CREATED wealth rather than merely shuffling it around.”

But I digress.

Sinegal begs to differ. He rejects Wall Street’s assumption that to succeed in discount retailing, companies must pay poorly and skimp on benefits, or must ratchet up prices to meet Wall Street’s profit demands.

Good wages and benefits are why Costco has extremely low rates of turnover and theft by employees, he said. And Costco’s customers, who are more affluent than other warehouse store shoppers, stay loyal because they like the fact that low prices do not come at the workers’ expense.

“This is not altruistic,” he said. “This is good business.”

Sinegal, whose father was a coal miner and steelworker, gave a simple explanation.

“On Wall Street, they’re in the business of making money between now and next Thursday,” he said. “I don’t say that with any bitterness, but we can’t take that view. We want to build a company that will still be here 50 and 60 years from now.”

If shareholders mind Sinegal’s philosophy, it is not obvious: Costco’s stock price has risen more than 10 percent in the last 12 months, while Wal-Mart’s has slipped 5 percent.

Also notable is the fact that Sinegal’s salary is a mere $350,000, which is small considering he makes less than a tenth of other CEOs whose businesses are performing on par with Costco. He says “I just think that if you’re going to try to run an organization that’s very cost-conscious, then you can’t have those disparities. Having an individual who is making 100 or 200 or 300 times more than the average person working on the floor is wrong.”

When I next do some big-box shopping (and yes, there are times it’s the best thing to do), it’s going to be at Costco.

13 replies on “Costco vs. Wal-Mart”

Costco likes to treat all its customers like potential criminals, though, insisting on seeing/checking receipts on the way out the door. I wonder what would happen if somebody simply declined to prove their innocence?

Buying Costco membership’s hardly much of a hassle: hand over $40, get your photo taken, get handed a card. The most annoying thing about them is their insistence on _not_ taking any debit/credit cards except (their affiliated) Amex. But still: Costco has a nice atmosphere. Wal*Mart has a grim, depressing, desperate atmosphere.

I’m not convinced, however, that Costco’s prices are always terrifically good; they tend towards premium name brands (and their own upscale Kirkland brand) at moderate discounts. Good if that’s what you want, but if you’re not fussy about branding you can often do better elsewhere. (For example: good discounts on Dyson and high-end Hoover vacuums at Costco; but I bought a mid-range Bissell at Target for half the price.)

And while Costco usually beats regular supermarket grocery prices, it doesn’t even get close to supermarket sale prices: in California at least competition is so stiff that loss-leaders are often discounted 50% or more. If you want to eat cheap: eat from the supermarket weekly fliers, not Costco.

(I suspect there’s a good followup story to be had on the staff running Costco’s sample stations: they’re employed by a contracted-in third party, not by Costco, and I wonder how their pay and benefits compare to those enjoyed by Costco employees?)

Unfortunately, we don’t have Target in Canada, I wish we did. Also there is much more competition in the States and you can get better deals elsewhere. Not such luck in Canada, we have a different market.

Joey, I have a Costco membership. I could have gone with you in lieu of a ride so that I can bring the 20 litres of Tide back downtown.

Make a note for the next time!

We’ll definitely take you sometime, Maria!! We’ll get a membership of our own anyway, but we’d be glad to give you a ride.

I am not a regular Costco customer (closest one is more than an hour) but got a membership for free from family. I find the point of debt cards inaccurate at least in AZ, I buy gas at the Costco near my parents and use my debit card regularly.

You’re right, Costco do take debit cards at their gas pumps. They don’t, however, take them inside the store. They’re the only retailer I ever write checks to.

(Related peeve: local Century movie theaters don’t take debit or credit cards at all. *boggle*. I still go, because my local theater within walking distance and is otherwise good, but I send in a customer feedback form each time griping about it.)

I think you either have the term wrong; you likely mean traders or some other creature of Wall Street but investment bankers do things like getting money for IPOs not give out stock tips to the media.

Do you really know what an investment bank does? I suspect this is not the case.

You’re wrong and right:

WRONG: I know what an investment banker does. I’ve met a number doing dog-and-pony shows during the dot-com days. Some of them could use a smack on the head anyways.

RIGHT: I had a brain fart while typing. The term I’m looking for is investment analyst. I’ve met these too, and shall correct the entry.

Then the rest of the paragraph lacks meaning; “”That was from Uncle Joey, who’d rather you actually CREATED wealth rather than merely shuffling it around.”

You can acuse investment analysts of many things (I am an economist and the party line on them is that they must either be charlatans or they should not be talking to you) but they dont really shuffle wealth around, mostly they give their opinion on the value of an asset.

that is they are Appreisers who happen to specialize on assets that pay dividends and which have payouts linked to the fortunes of some legal corporation.

I cant see how it could be true that “shuffling it [wealth] around.” is all they do without it being true of all people who work as appraisers, can you?

Wait, which Costco are you going to? I’ve used a debit cards in CA Costcos. Whichever one’s close to the airport.

Umm, that receipt check is more than a checking your honesty; it checks the accuracy of the system — twice they found that I had been double-scanned – I think the systme scanned the item and the package code and/or the checker stuttered past the scanner. The real reason though is to make that mark on the receipt so you can’t use it again.

I imagine that people have figured out ways to get stuff passed the checkout counter without getting it scanned but then why put it in the basket – just keep it where it was and the door guard won’t see it either. I think the worst you can say about the system is that they don’t want you to use the receipt more than once – which seems reasonable to me.


regarding the Debit Credit card issue I guess it depends on the state because I live in Seattle, Wa I work at Costco and they accept debit but not Credit unless its Amex they have a deal with Amex so they don’t have to pay a small fee everytime someone uses an AMEX card but any other credit card someone uses Costco has to pay a fee.

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