Why Costco may be Obama's favorite store

The president heads to a location in Maryland the morning after his State of the Union speech, and he'll likely tout the company's generous wages.

By MSN Money Partner Jan 28, 2014 1:33PM
File photo of people entering a Costco warehouse store in New York City (© Spencer Platt/Getty Images)By Jeffry Bartash, MarketWatch

President Barack Obama is shopping for ideas on how to improve the pay of U.S. workers, and the giant warehouse retailer Costco (COST) appears to be his brand of choice.


A Costco store in Maryland will host the president Wednesday, the morning after his State of the Union speech. Obama is likely to tout Costco's generous wages as one of the antidotes to what the president views as a growing disparity in America between the rich and the less well-off.


Costco is unusual by industry standards. The company pays an average of just under $21 an hour and offers health benefits to most employees, and some of its workforce is unionized. Executives back an increase in the minimum wage, supported Obamacare and have been big contributors to Obama's two presidential campaigns. 


Not surprisingly, Costco has become a darling of the political left for its progressive style of management. The company is seen as a sort of Luke Skywalker of the retail industry -- if perhaps less handsome and dashing with its concrete floors and stacked paletts of oversized consumer goods.


The president, who has praised Costco before, is unlikely to make any mention of another company that's viewed by liberals as the Darth Vader of retail: Wal-Mart (WMT). Yet the implication will be clear.


The nation's largest chain store pays its employees an average of under $13 a hour, health care benefits are less generous, and the company vociferously fights unionization. Many people on the left view Wal-Mart's huge influence on the economy as pernicious.


Could more "enlightened" leadership at Wal-Mart do like Costco? After all, Costco's stock has surged along with its profits, showing that companies in the cutthroat and low-margin retail trade can still flourish even when paying workers well.


Yet any analysis of the companies' pay scales needs to take into account the two very different business models, some of which explains the large gap in how they compensate employees.


Wal-Mart is a traditional retailer that stocks a vast array of goods at its nearly 4,000 full-service stores in the U.S., many of based in rural or lower-income parts of the country. Their customers flock to the stores for the wide selection and low prices.


The much smaller Costco, with just 450 U.S. stores, is a specialty retailer that builds warehouses in higher-income suburban areas. The company charges an annual fee of $55 to regular store-goers, offers a more limited but often-upscale selection of goods, and good luck finding a salesperson to help you in a busy aisle. 


Costco is great at what it does -- the company beats the pants off Wal-Mart's own version of a warehouse store known as Sam's Club. Although Sam's Clubs outnumber Costco stores by 175 in the U.S., Costco generates one-third more annual revenue. Indeed, Sam's Club announced just last week that it would cut 2,300 jobs -- the sort of thing that never happens at Costco.


If Wal-Mart can't even duplicate Costco's success in the warehouse niche, there's virtually no chance it can run its main stores in the same pro-worker manner. 


Indeed, Costco's unique approach to business probably is not a model that most retail chains can emulate, especially with online competition getting fiercer by the day.



Tags: COSTWMT
476Comments
Jan 28, 2014 2:21PM
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If you have ever been a Costco or Sam's Club the layout is almost identical.  The products and pricing are very similar and the lack of staff to help you is about the same.  The long checkout lines are also about equal.  
Why then is Sam's Club laying off employees while Costco is paying an average of $21 per hour plus benefits.
I recently read that the top executives at Costco make a very good living, but not millions on millions of dollars each year.  I think the top guy made just over $1 million.  Top people at WalMart/Sam's Club made mulit of millions.  Costo shares the wealth with the people who produce it, while WalMart continues to pay its top executives and Sam's heirs ridiculous amounts of money.
Jan 28, 2014 2:10PM
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The best thing Obama can do for jobs and the economy is resign.
Jan 28, 2014 2:12PM
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Costco and Walmart is not a fair comparison. Costco and Sam's club is a fair comparison. Both have membership fees however Costco/Sam's does not pay for every shopper because of the membership fees if you do not purchase enough product. For us it is not only food and non-edibles. We have purchased seasonal, TV's, patio furniture and other high ticket items. We regularly shop at Costco and have an executive membership that we spend more than enough to get cash back once a year that more than covers the membership fee. We always ask the employees "are you happy working for Costco", along with a resounding yes, we get the kind of smile that you know is not a put on
Jan 28, 2014 2:08PM
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"""Why Costco may be Obama's favorite store""

Simple, one  of the co-founders gives big money to Barry and the Dems
Jan 28, 2014 3:44PM
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Some companies pay well, some don't.  Is this some type of revelation?  We have an extremely successful fast food joint in California called In N Out Burger that pays well above the minimum wage, so you would think that anyone working at McDonalds would apply there.  The problem is, with In N Out, you're expected to be able to fill out a job application, you can't have visible tattoos or piercings, and you need to be able to communicate in English.  That disqualifies about 95% of those working in the larger burger chains. 

So, if you think Costco is a great place to work, apply for a job.  If you aren't happy at Walmart or Sam's Club, apply at Costco.  If you are qualified you may get hired; if you aren't, you won't.  It's the American way!
Jan 28, 2014 2:18PM
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I believe Costco is a well run operation that works off a minimal percentage of profit margin. They are more apt to go with volume and also keep the standard of the products at a high level. I happen to enjoy shopping because of their value, friendly and happy staff. Their return policies are one of the best. I never leave without purchusing one of their roasted chickens. $4.99 ready to eat is a great deal. 
I think the Pres should speak to the operating CEO`s of Costco after his tour of the store instead of trying to guess how they are doing it. Getting it from the horses mouth is far better than getting the stuff the politicians have been giving us from the other end for years.
Jan 28, 2014 2:19PM
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OK, enough with this $21 an hour BS.  First of all, they shouldn't be quoting averages, since that takes into account the CEO all the way on down to the lowest level full time paid worker.  They should be quoting median. Big difference.   Also, the $21 average is for full time workers only.  The vast majority are part-time just like at any other retailer, and I can assure you they don't get anything near $21 an hour.  You have to work there a long time before you get any decent amount of hours, yet alone the good pay.  No, they don't start at minimum wage, but $10 something an hour is a far reach to that oft quoted $21 an hour.
Jan 28, 2014 2:03PM
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Dear Costco, please don't give me a reason to stop shopping at your stores.  If you haven't noticed, everything Obama touches moves America one step closer to bankruptcy (all of the solar power factories that received billions in government loans, healthcare, the office of the president, the Senate - including Harry Reid and Nancy Pelosi, etc.)  
Jan 28, 2014 2:51PM
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"supported Obamacare and have been big contributors to Obama's two presidential campaigns."
There you go!There's a couple of reasons why Obama likes Costco,and also it appeals to the "Left".
Jan 28, 2014 2:07PM
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Hey Mr. President.  A great success story for you would be to go back to other places you visited & touted, like Slyndra or Caterpillar.  Oops.  Watch out Costco.  Here comes the guy with the anti-midas touch.
Jan 28, 2014 2:50PM
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It's an old concept that CEO's forgot. Henry Ford started it, pay your employees a decent salary and they will be able to buy your products. It's too bad that more business people don't get the concept. If everybody is poor the economy tanks.
Jan 28, 2014 2:05PM
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Favorite store?  Are they letting him run up a huge unmanageable debt there as well?
Jan 28, 2014 2:30PM
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Oh please!  Obama is the worst press person for a great store. I can just see him walking through Costco, throwing things in his cart with Michelle helping him and when he get's to the register, saying "Charge it to the tax payers in this country"." We're on our way to another vacation."
Jan 28, 2014 2:57PM
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Obama's favorite store?   Good enough reason never to step in one again...

Why support business' that support his policies?   
Jan 28, 2014 2:16PM
Jan 28, 2014 2:42PM
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I find it ironic, at a minimum, that Obama wants those making not very much to make more. Then, when they make more he will tax their **** off. Exactly what were you people thinking when you voted for this lying, incompetent windbag?
Jan 28, 2014 2:07PM
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Why can't we have a President like "Dave"? I'd like to see Obama stroll down the aisles and give his opinion of the foods he samples, but he knows nothing about retail businesses and needs to keep his mouth shut until he learns something.
Jan 28, 2014 2:26PM
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I like Costco but I'm a little saddened to learn that the money I spend there goes to government policies that I don't agree with.

I'd like to think that a lot of companies would choose to follow Costco's lead in how it does business (especially CEO pay - last time I did research on it, Costco's CEO only made something like $200,000 a year, but it has been a while since I've researched that) but I'm afraid that our government is going to try to force it, which I don't believe is the American way.
Jan 28, 2014 2:50PM
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Costco has membership fees and prices higher than Walmart which is why they serve richer areas and Walmart serves the poor.  Get rid of Walmart and no stores serve the poor.
Jan 28, 2014 2:41PM
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Not a very fare comparison, Walmart is in about every small to mid-sized city in America wereas Costco tends to be in larger cities where the cost of living is higher and dictates a higher wage.
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