Costco vs. Sam’s Club: Busting the G.J. Chamber’s Minimum Wage Myths

screen-shot-2016-09-25-at-11-38-08-amColorado’s Amendment 70, if it passes this November, will gradually raise the state’s minimum wage to $12.00 an hour by 2020. Some people wonder, if we pay people a higher minimum wage, where will the money come from?

The money comes from either a businesses’ profits, or its debts. But raising the minimum wage doesn’t necessarily mean customers will pay higher prices for goods and services. To the contrary, a number of real-life examples show that rock-bottom pay and benefits don’t necessarily translate into lower prices. In fact, stingy wages often prove even more costly.

Low wages are associated with higher employee turnover, and the lower the wage the higher the turnover. Some fast-food chains, for example, have a 100 percent annual employee turnover. This can cut into employers’ bottom line by increasing hiring and training costs. Data from places where the minimum wage has already been raised show that higher wages consistently lead to greater employee retention, higher employee satisfaction, loyalty and productivity, less turnover, and lower training and hiring costs for employers. Higher wages also result in less employee theft, where low-paid employees steal food and clothing to help themselves and their families get by. This all translates to sizable savings for employers.

Big, well-known, successful chains like Costco, Trader Joe’s and QuikTrip Convenience Stores are known for investing heavily in their employees, but at the same time they have some of the lowest prices in the country for their goods. Why? Because the financial benefits these companies realize from providing their employees with decent wages and benefits have been more than balanced out by what they experienced in lower employee turnover, lower hiring and training costs, greater employee productivity, satisfaction, loyalty and sales.

The Costco vs. Sam’s Club Example

Diane Schwenke of the Grand Junction Chamber quotes a statistic by Erc Fruits, a freelance, pay-for-play economic consultant who works out of his home in Portland, Oregon, producing reports that meet the needs of his paymasters

NUTTY AS A FRUITCAKE- Diane Schwenke of the Grand Junction Chamber cites a statistic generated by “Eric Fruits,” an out-of-state, pay-for-play economic consultant who works out of his home, while ignoring the conclusion of over 600 professional economists, including 7 Nobel Prize winners, who say increasing the minimum wage has little or no negative effect on employment.

Take for example Costco vs. Sam’s Club, which is owned by Wal-mart.

Costco’s employees earn an average of $17/hour. Eighty-two percent of Costco employees are covered with health insurance, and they pay just 8 percent of their health insurance premiums. Ninety-one percent of Costco employees have retirement plans, and the company pays about $1,330 annually towards each employee’s retirement plan. At Sam’s Club, the average wage is about $10.00 per hour, fewer than half of Sam’s employees have health insurance, and those who do pay 33 percent of their health insurance premiums.

Costco’s operating costs are obviously higher than Sam’s Club’s, but Costco’s employee turnover rate is just 17 percent overall, and drops to only 6 percent after a year of employment. Costco’s attractive pay and benefits package is specifically aimed at discouraging quitting. Sam’s Club’s turnover rate is about 44 percent annually, so they are losing over twice as many employees yearly as Costco, and incur greater costs for hiring and training new employees on an ongoing basis. A Costco employee generates about twice the amount of profit as a Sam’s Club employee, and Costco also enjoys one of the lowest employee theft rates in the industry. Costco’s extremely loyal and efficient workforce generates billions of dollars more in sales each year than Sam’s Club’s workforce, and Costco does it with 38% fewer employees than Sam’s.

What’s more, in 2013 Costco had an 8% growth rate in sales while WalMart/Sam’s Clubs saw only a 1.2% rise in sales.

Both chains have low prices, but one chain is more efficient and successful, with a more stable, more satisfied workforce. Despite it’s extraordinarily high wages and benefits for employees, investors have called Costco “unstoppable” and “Amazon-proof.”

The Grand Junction Chamber wants people to think that paying workers starvation wages is the only way businesses here can function. That is not the case.

Members of the Grand Junction Chamber believe paying workers starvation wages is the only way western slope businesses can function. That is clearly not the case.

This proves that a race to the bottom isn’t the only way to operate a business, as the Grand Junction Chamber of Commerce would have us believe. Being stingy towards employees is not the best business model, and is often a less efficient one.

As it is with everything, you get what you pay for when it comes to your workforce.

Well-compensated workers pay sizable financial benefits to employers through increased loyalty, efficiency and longevity. This can also lead to a boost business. Experienced employees are more knowledgeable and create a bigger draw for customers. They answer questions knowledgeably and accurately, help customers locate merchandise more easily and generally make the shopping experience smoother and easier. This in turn draws a larger and more loyal customer base.

Paying low wages is a choice, not an economic necessity.

Clearly businesses can pay employees decent wages and still thrive.

So don’t be afraid of an increase in Colorado’s minimum wage. Beyond the benefits noted above, a higher minimum wage will put more money into the pockets of people who will spend it locally, which will further boost the western slope’s economy.

Decades of western slope employers offering rock-bottom wages so far have not succeeded in changing our area’s persistently downward-spiraling economy. The lessons that can be learned from highly successful chains like Costco, Trader Joe’s, QuikTrip and others show that a decent increase in the minimum wage could be just the shot in the arm western Colorado needs.

  11 comments for “Costco vs. Sam’s Club: Busting the G.J. Chamber’s Minimum Wage Myths

  1. Hi,How can I watch/buy this documentary? I am writing my final dissertation for my bachelor degree on Tunisian wo2&me#8n17;s rights and this seems perfect! Also anyone willing to contribute or share information etc, please do so! My email is Cheers

    • I don’t understand why you are showing me restaurants in Seattle. Comparing anything Seatlle to GJ is somewhat comical. A 600 sq ft studio downtown is $2000 a month

      • Really Evan….You don’t see the wisdom of communicating with like-size businesses to yours? They have gone through a wage transition already. Fore knowledge should be nirvana to a business person.

        We are NOT TALKING about direct comparison COL. We are talking about sensible wage increases over a reasonable amount of time. The strategy is to survive and thrive as a business while accomplishing this wage requirement.

        The one thing you have complete control over is your attitude. Negative attitudes breed negative health benefits. Smile.

  2. Evan, have you contacted any of the Sea-Tac Washington independent restaurants to find out how they are coping with the wage increase base of $15/hour? That would probably give you a lot more information on how they have developed a process for compliance. Sometimes the anticipation of a change and the subsequent long term effects are nothing like what was imagined.

    I was a Director of Nursing in a 180 bed long term care facility that was cited for compliance deficits 3 days after I took over the position. I analyzed the business top to bottom, did care time studies, wrote a dissertation on what changes were needed, turned all my research into management. They responded positively. Turnover in Nursing homes is THE biggest issue when it comes to quality patient care. Second is lack of family involvement. I could not give staff a raise, but I started one of the first accredited Nursing Aide programs in Washington, accredited at that time through the state of Colorado. With help of staff, we started a bi-monthly family night. The result of just these two changes, turnover went from … this is the truth….120% every two months to no losses in a 6 month period. Families slowly started coming back. The facility was re-accredited.

    The lesson for me in this scenario early in my supervisory career was small honorable employee-directed changes makes a huge difference in business. You get appreciation, loyalty and happier employees. If you run a business that cannot afford to pay an employee a “livable” wage, how much loyalty and respect do you think your employees maintain for you and themselves? Remember, Costco gets loyal happy employees with a starting wage of around $45K/year. Barely enough for a single parent to live on with 2 children. So where do they go now for help? They go to social services. Poor wages and benefits are then paid out of my pocket through taxes. I DO NOT WANT TO SUBSIDIZE YOUR BUSINESS IN THIS MANNER. I would pay $12 for a GOOD organic locally grown hamburger. Time to change our paradigms and think outside the box.

  3. Anne, I am not opposed to a minimum wage increase. However, the restaurant business is not Cosco. Our servers and front of house generally are 75% of your staff. Most of my kitchen already exceeds $12 an hour. As of now the Restaurant Association has kept servers wages $3.00 below minimum wage, currently $8.31, so $5.31 for servers. If we had to pay servers $9-$12 an hour, menus prices will escalate very quickly. Even though fast food complains the most about increased wages, they will be affected the least. Full service restaurants will have to increase their menu prices just to keep the same percentage of profits. So, if you don’t mind paying $12 for a hamburger and playing field is level, I could live with it. There is no provision in this bill for the service industry which is making a lot of restaurateurs very nervous.

    • Hi Evan, I get what you are saying. According to the Denver Post, the measure does boost Colorado’s minimum wage for tipped employees by 70%, but doesn’t raise it to $12/hour. The Post says Colorado’s wage for tipped workers would go up to $8.90, so you’re already exceeding that amount.

      Some restaurateurs are switching to an optional 15% service fee rather than continuing to use a tipping system. They say creates a more predictable income base.

      Also, some restaurateurs who have already voluntarily raised their own wages significantly to assure their employees have a living wage have gotten some of the cost compensated by their savings due to lower turnover and expenses associated with hiring and training. Here’s an excerpt from an article in the Denver Business Journal about Amendment 70:

      ….”Pete Turner, founder and president of the Illegal Pete’s chain who is in favor of the ballot initiative, told the crowd of how he decided to boost the floor wages at his restaurants last year from $9 an hour to $10.50 an hour and to ensure that workers already above that pay level received at least a $3,000 annual boost.

      It cost his company about $650,000, as it did not raise prices to offset the increased expenditures. But it also cut hourly-employee turnover down to 29 percent and manager turnover down to 10 percent — numbers that are less than one-quarter of the industry average and that helped him make half of those costs back in reduced training, he said.”

      Here’s are references:

      • “The Post says Colorado’s wage for tipped workers would go up to $8.90, so you’re already exceeding that amount.”

        Not really, servers make $5.31, that is quite the increase. As to service charge, I only have one word NEVER. The service charge is one of the hottest topics in the Caribbean. The topic is about 90% negative. We specifically look for restaurants that do not have a service charge. What’s the incentive to give great service?

        Do you think this is a good thing?

        “It cost his company about $650,000, as it did not raise prices to offset the increased expenditures. But it also cut hourly-employee turnover down to 29 percent and manager turnover down to 10 percent — numbers that are less than one-quarter of the industry average and that helped him make half of those costs back in reduced training, he said.”

  4. I’ve always suspected as much: 2 and a half Walmarts, a Sam’s Club, but no Trader Joes or Costco in Happy Valley. Benita confirms my suspicions. That there are many ill-advised people in positions of power that would rather we remain poorly compensated. I don’t believe it’s a conservative or liberal mindset, just ignorance of real economics.

  5. Two years ago, after months of calls, I was able to break through the walls that hide Costco executives. I made a “friend” of the executive assistant of the person that decides where, when and how to put up a new Costco store. Costco has a Real Estate Broker, at the time, N.W. Atlantic Partners, go to a market area and complete a comprehensive review of all effects that would have an impact on a Costco store. The nearest Costco to Grand Junction is in Gypsum.

    I got attention when I mentioned the Gypsum store does not serve the Western Slope and is their poorest performing store. The attention was not immediate. When the I got a call back, the Los Angeles Real Estate Broker ( his name was Mike…but it is not important ) called me back directly. Mike had already re-evaluated Mesa County when he called, based entirely on my persistent phone calls. He said that “sadly nothing had changed.” Costco had evaluated this area about 6 or 7 years before (around 2007), and had found the area had one huge problem…”wage levels.” Mike said essentially, that the Chamber had warned them that if Costco came in at the same starting wage levels as they normally do, that the local businesses would have to close their doors. He said wage levels were way too low for Costco to disturb the culture of business as it was before (2007) and as it is now.(2014)

    I still have all the contact info for Costco if someone wants to start a movement to get one here. The truth is, no business with a corporate conscience when it comes to their employees, is EVER going to set up shop here. Chamber interference, low wages, poorly trained population, high numbers of retired with limited incomes, lack of good schools, etc, are working against increasing good paying jobs with benefits. Our County Commissioners do not inspire the possibility of change.

    • Hi Benita,

      Let’s contact Costco and start the movement again. They provide good-paying jobs, we would prefer to shop there over Sam’s Club, and it would be interesting to see the chamber come out publicly against building a Costco here, if they dared.

Leave a Reply

Your email address will not be published. Required fields are marked *