Wal-Mart is not Costco; So Why Should it Pay Like Costco?

Note: Costco also collects yearly fees, Walmart does not….

Courtesy of Mish.

President Obama, the unions, and Democrats in general are attempting to force Wal-Mart to raise its minimum wage.

In Seattle, there is an absurd push by activists to raise the minimum wage to $15 per hour for fast food workers, retail clerks, baristas and other minimum wage workers.

Venture capitalist Nick Hanauer said there's no time to waste. What the nation needs is money in the hands of regular consumers. "A higher minimum wage is a very simple and elegant solution to the death spiral of falling demand that is the signature feature of our economy".

Trader Joe's Lesson

Sophie Quinton for The Atlantic says The Trader Joe's Lesson: How to Pay a Living Wage and Still Make Money in Retail

Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe's, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity.

"Retailers start with this philosophy of seeing employees as a cost to be minimized," says Zeynep Ton of MIT's Sloan School of Management. That can lead businesses into a vicious cycle. Underinvestment in workers can result in operational problems in stores, which decrease sales. And low sales often lead companies to slash labor costs even further. Middle-income jobs have declined recently as a share of total employment, as many employers have turned full-time jobs into part-time positions with no benefits and unpredictable schedules.

QuikTrip, Trader Joe's, and Costco operate on a different model, Ton says. "They start with the mentality of seeing employees as assets to be maximized," she says. As a result, their stores boast better operational efficiency and customer service, and those result in better sales. QuikTrip sales per labor hour are two-thirds higher than the average convenience-store chain, Ton found, and sales per square foot are over 50 percent higher.

A Different Model

Yes, Ton, you are exactly correct. QuikTrip, Trader Joe's, and Costco do have a different model and it would behoove someone at MIT's Sloan School of Management to figure out differences in that model, and why retail sales at Trader Joe's beat those of Wal-Mart by 50% on a square footage basis.

Why Wal-Mart Will Never Pay Like Costco

Bloomberg writer Megan McArdle hits the nail on the head with her analysis of the situation in Why Wal-Mart Will Never Pay Like Costco.

Wal-Mart is trying to move into Washington, a move that said local housing blog has not enthusiastically supported. Hence, we’ve been treated to a lot of impassioned reheatings of that old standby: “Costco shows it’s possible” for Wal-Mart to pay much higher wages. The addition of Trader Joe’s and QuikTrip is moderately novel, but basically it’s the same argument: Costco/Trader Joe’s/QuikTrip pays higher wages than Wal-Mart; C/TJ/QT have not gone out of business; ergo, Wal-Mart could pay the same wages that they do, and still prosper.

 

 


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