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.
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.
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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!
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