Having read the interesting article submitted here, I have to say that it is refreshing to see an analysis of different approaches to retailing that focuses not only on the demographic groups served by the different retailers, but also on the SKU (stock-keeping unit) count for each retailer. Having more different products in stock is more expensive than having fewer different products in stock. Carrying "name" brands is usually more expensive than carrying "store" brands.
There are plenty of other differences between the shopping experience at Wal-Mart and Costco. A peculiarity of local geography is that we find that the two Costco stores at our end of the Twin Cities metropolitan area are just never on our way to anywhere else, so we let our Costco membership lapse after just one year. For quite the same reason, we hardly ever shop at Wal-Mart. But we shop at Sam's Club (the Wal-Mart version of a warehouse store like Costco) all the time, simply because it is on my way to work and largely on the way to many of our other trips during the week. Today we built a trip to Aldi into our schedule while our daughter was at soccer practice about halfway from our house to that store. We love to minimize driving--driving costs both money and time. Some stores cannot thrive unless they are within SHORT drives of many customers. Some of those stores have to extract a lot of productivity out of each worker to pay the workers even minimum wage.
I still wonder when Amazon is going to go all-in in setting up major same-day delivery centers in most metropolitan areas in the United States. That could have a revolutionary influence on my shopping habits. And if robots can do more of the stocking of shelves, and eventually self-driving cars do most of the delivering, that business model could end up with huge market share. I'm very happy when workers at menial retail jobs are paid more--I have had such jobs (at
Sears and at Target, many years ago). But they best gain opportunity to advance themselves economically when they also can save on their own consumer spending in retail stores. Everyone likes low prices day in and day out.
>Some stores cannot thrive unless they are within SHORT drives of many customers. Some of those stores have to extract a lot of productivity out of each worker to pay the workers even minimum wage.
Many, now. Logistics is (and has been) a massively growing field when it comes to deployment of franchises of restaurants as well as groceries and general goods stores. There is hugely growing sentiment against unnecessary driving, partly due to rising fuel costs but I also hypothesize that media pressure of said fuel costs as well as innovation from Netflix etc. drive this signal as well. "Why leave the house when you don't have to" has farther reaching effects than simple DVD rentals.
Great post, BTW - and a very interesting subject indeed.
" But they best gain opportunity to advance themselves
economically when they also can save on their own consumer
spending in retail stores. Everyone likes low prices day
in and day out."
Great observation. I know there is a business model somewhere that allows poor people to afford the same economies of scale by splitting bulk purchases somehow. I imagine that one of the neighborhood social networking sites like NextDoor could add feature that allows a neighbor to broadcast their future purchases to their neighbors and other neighbors that want the same product can choose to up the volume of those purchases. This will allow them to save money via volume and shipping. The company doing the sale (whether Amazon, Walmart, or whatever) would deliver all the stuff to that one neighbor and then the other neighbors would show up at the ordering neighbors house to collect their share of the purchase. This would be a very compelling feature for NextDoor or similar site to create a revenue stream that increases their attractiveness to lower income neighborhoods.
When adding to the cart, the user can choose to add products publicly or privately so that only non-personal products are broadcast to their neighbors.
I don't think I missed it but I am confused why the author steered clear of some really interesting data. Based on the table Walmart has 2X the profit margin of Costco. Walmart's doing around 4.5x topline revenue but over 9x the total profit amount.
For the author's central point to hold true those numbers need to be more closely aligned. That is, they need to be roughly the same in % terms. They aren't, which means one or both of the players are doing something substantially different in their approach. Given that labor costs are the single largest expense for these types of business it's not unreasonable to reach the conclusion of those she's rebutting with this article. Namely that Walmart is overly maximizing profits based on the back of paying extremely low wages. To put it another way, if for some reason Walmart was told to bring it's margins in line with Costco the easiest way to do that would be to bring your wages up and keep your prices the same.
Let's do back of the envelope math based on the chart in the article. If Walmart had the margins of Costco rather than the current ones that would see it's profit dip from $15.6 billion to $7.53 billon. That in turn would "free up" $8 billion in what is now pure profit. With 2 million global employees you could pay them all $4K more. That's a 20% salary increase for the basic salary they highlighted of $20K per year.
I'm not bashing Walmart. I'm just pointing out that Costco seems to have made the decision to have meaningfully smaller margins than Walmart. Given where the bulk of their costs lie they must have had the conversation more than once about paying folks less to move those margins up to please Wall Street more. Yet they have decided not to do that. Perhaps it's simply because they believe the business benefit around being easier for them to be accepted in new communities (and thus grow) based on the real and perceived perception that they treat their workers well.
PS: Anecdotally Walmart opened near us two months ago. I have now been there 4 or 5 times. I am struck by just how many people there are working there on the floor. There seem to be too many whenever I'm there. They look bored and so congregate in groups and shoot the breeze. I couldn't get that out of my mind as the author kept stressing they really need a lot more employees.
Did you notice the data point in the article that Costco makes $2 billion in membership revenue and yet makes $1.7 billion in profit, which means they effectively lose money on their sales?
In fact, a little known feature of Costco's business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.
Everything about Costco's business model is backwards.
According to the data in the article, Walmart would have the same profit margin as Costco if they spent $3,500 more per employee annually. Ignoring part-time workers, salary-exempt, benefits etc., this is an hourly wage increase of about $1.75, still well under what Costco pays.
I used to work in a supermarket and in a department store.
Those people you see shooting the shit and slacking off are necessary. The reason why they're there is because if the store suddenly gets packed, they will be split up and given tasks. They're insurance. You can't not have them there, or you'll get customer complaints when they can't find someone to help them, there's too few lanes, etc.
And that's just during the day in front-end customer facing situations. They're constantly called back to inventory to do warehouse-type jobs, even if they're cashiers.
Given that labor costs are the single largest expense for these types of business it's not unreasonable to reach the conclusion of those she's rebutting with this article.
Whaaaa? The largest expense, by far, is most certainly cost of goods sold.
It's a good point, Walmart is doing better in both volume and margins. That might imply Walmart has poorly allocated some of its returns.
There's a floor, though, where that argument isn't as compelling. It's not like we're talking of dropping from 20% to 10% margins, here, Costco's 1.7% margins might not be sustainable, or might only be sustainable for a business with less fixed capital.
I mean, maybe you're right, maybe 1.7% isn't that floor yet, I'd just need more information.
But the last piece focused more on the fact that Walmart is in business relationships with more poor people than just its employees. So even if Walmart has poorly allocated its returns, I'd rather see those margins distributed to customers or foreign suppliers first, because my hunch is that the humanitarian impact would be greater on these groups, who I see as larger, poorer, and having fewer substitutes.
"I am struck by just how many people there are working there on the floor. There seem to be too many whenever I'm there."
Maybe that's more more of a load problem? They are probably there for the peak rush periods, and I would imagine forecasting those accurately is almost impossible, so you operate with a buffer. Lower wages enable them to be more flexible in handling these peak loads.
In terms of your point about the financial impact, a quick look at the SG&A of Walmart (20%) shows a big difference vs. Costco's (~9%). I don't have the breakout of employee wages, but it does seem like it's definitely a more labor intensive model. Then again, they probably could afford to pay higher wages, but the problem is that customers haven't given them a financial incentive to do so. I feel like the point the author was trying to make was a good one...many people that write about these issues should acknowledge the different business models instead of just quickly pointing at Costco and saying the model works with higher wages.
Walmart tried to move into a dilapidated mall in my neighborhood and everyone fought it and they couldnt. They moved a mile down the street to a slightly less wealthy neighborhood, in a dilapidated strip mall. Five years later, the strip mall with walmart is bustling with business and the other mall is still mostly empty. Wasted opportunity to get business into the township.
Even though I generally wouldn't shop there, I have no issue with walmart, for exactly the reasons this author suggests I wouldn't
What you say cannot possibly be true. I have been told time and time again that the arrival of a Walmart always spells doom for adjacent businesses, and the people who told me that seemed very sure about themselves.
I agree. I tend to avoid Walmart due to its low quality on a lot of the store brand goods, but don't actually have any issues with how they run their business. They aren't exactly hiding that they are a low-cost retailer.
If people have problems with the wages Walmart pays they should stop attacking Walmart and go deal with the people who actually set the minimum wages: your congress critter.
1. They pay their employees $10-$17/hr as opposed to Walmart (as discussed in the article)
2. CEO earned 350k in 2012, only twice that of a store manager at Costco
3. Margins are razor thin. In fact, an employee got yelled at for selling something at a higher margin (even though all the products were successfully sold within a week)
4. ~40% of Californians have a membership
5. 30% of inventory is at the store within 8 hours
*Note: My employer is a consultant for Costco, and I might be too, so I'm definitely bias, but I love the company.
CEO earnings are generally much more extensive than just the salary (I'm not judging, just saying). This link seems to indicate that the compensation was maybe $4.8 million (basic compensation fiscal year 2012) to over $10 million (options, WARNING I'm not sure how to read these so just addding all of them together)
The article is Slashdotted, I cannot load it. Let me explain something.
Walmart follows 'classical management' of negative reinforcement and cutting expenses down to the bone including salaries, benefits, and other stuff. They are willing to pay executives millions while letting most employees work for slave wages with little to no benefits to cut down on costs as much as possible.
Costco follows 'participatory management' in which management gets involved with the employees and empowers them to make their own decisions. Executives are not paid millions and their salaries are based on how well the company does to encourage growth. Employees are paid more so they will be more productive and with good benefits to take care of health problems and family problems so they don't interfere with work. If the company is losing money, they do job cost analysis to see what products and services cost more to support than the revenue they bring in, and then quality is improved on those services and products and if it cannot then those products and services get cut instead of the people and new products and services replace them.
Steve Jobs did this with Apple, cut out products and services that didn't bring in enough revenue to justify keeping them, cut his own salary as the iCEO, improved the quality of products and services or come up with new ones to replace them. Walmart and other 'classic management' companies just don't understand how to do that so they take it out on the employees instead.
I'd argue that spending 0.01% of revenue on key executive compensation (which is the 'paying executives millions' you talk about) is irrelevant to Wal-Mart overall and how much they can or can't pay their workers. Even if you stripped the executive compensation and gave it to the workers (2.2m of them), you'd only be handing out $30 to each person. That's a few hours of work total, and amortized over a year? Not a factor at all in the grand scheme of things.
...
The article is well worth a read. It's interesting and insightful and discusses more interesting things like business models, target demographics, value-mindedness, etc. I recommend it if you can get it to load. (It was fine for me.)
I think we're forgetting that the Walmart customer is not the Costco/Trader Joe's customer.
I would argue that Walmart pays minimum wages because they can and their customer base doesn't really value the benefits of paying higher wages and 'participatory management' - primarily lower turnover and thus more engaged/invested employees who deliver better service and higher productivity. Walmart most likely sees their employees as replaceable and the average Walmart customer is driven by low prices and not great customer service. To that end, the lower the Walmart cost structure, the more margin they have to work with to stay competitive (without having to lower CEO salaries, etc. of course).
Costco and Trader Joe's are known for great customer service and easy return policies. Based on my observations, people who shop at Costco like to save money, but it's from a best value angle and not from an absolute cheapest I can get angle. The Costco consumer has to be willing to shell out an annual membership fee up front and you're buying in bulk which means you have to be able to pay for goods you use in the future. Trader Joe's wants to be the neighborhood store and that means they need happy employees, not employees who are thinking about how they're going to pay for the knee surgery they badly need.
I'm probably making broad generalizations of the different customer bases here but it's what I've personally observed.
Can you name one Fortune 500 company that doesn't pay executives millions? Facebook, Google, and Apple pay its executives millions, and yet its contracted janitors get low hourly rates. Where's your rage?
I am not sure why anyone would want to be an executive, unless one gets paid millions. Executives work crazy hours, travel all the time and don't see their families. Who would want to do that, if not for the millions ? Sure, some would, but not many
The number that caught my eye is Revenue/Total Employees. That brings home some realities of markets. Total revenue in the market is the amount consumers spend on groceries. Thats more or less constant. Wall Mart's low revenue/employee ($211k vs $620k) means they employ more people for every dollar of market share they have. This is an enormous difference. It implies that every time Costco win $1m in market share from Wal Mart, total employment drops by 3.1 people.
Aldi (and its slightly upmarket cousin, Liddel) serve a similar market segment to Wal Mart in Europe. Is suspect they do it with even higher revenue per employee. These store are all about labour efficiency.
This might be a "be careful what you wish for" scenario for retail workers and people concerned with wages at the lower rungs. Employers might be able to afford higher wages, but demand for those wages will go down. In that case, its hard to imagine wages really improving in the long term. Even if they did, total employment would be much lower and that would hit the lowest skill workers hardest. When you pay better wages, you can be choosier.
This may be taking it a little far but.. I think what we see running through this scenario is an example of how improved efficiency breeds wage inequality.
That's true for all kinds of efficiency, including automation, which is near and dear to the hearts of Hacker News readers.
The benefits of improved efficiency and automation, as you have pointed out, skip over employees. Some of them accrue to customers in the form of lower prices, but largely they accrue to management and shareholders in the form of increased profits. Costco appears to be the exception that proves the rule, here.
In theory, efficiency and automation should be a net benefit to society, as we can then enjoy the same level of goods produced with less labor involved, but the uneven distribution of benefits causes lots of avoidable suffering on the part of laid-off workers.
A guaranteed basic income for all (as opposed to means-tested benefits like welfare and the EITC) would fix a lot of that. It would remove the suffering from losing your job, and give investors an incentive to automate even more, as now you would have to pay people quite a bit to motivate them to accept low-skill menial jobs.
We can fund such a basic income in part by dismantling the welfare state bureaucracy. No means testing makes distribution much simpler. The rest through higher taxes on income beyond the basic.
A lot of what I knew about Walmart came from third party sources (activists, whatever), so I decided to go to a primary and read Sam Walton's book, and I must say it gave me a new appreciation and understanding for the vast machine that is Walmart. I highly recommend it:
On the other hand, here in India- My neighbor has just come back from Dubai, after serving as a cashier at a major retail firm for almost 20 years.
According him, surprisingly enough they make money while customers don't bother to collect change, or when the cashiers don't have change they just leave it at them. They keep a track of how much change has collected like that hourly or at half-day and then they pocket that. The company doesn't lose money anyway, the customers give away the change like tip. But in the process these guys make a lot of money.
According to him, the money he makes through the change is actually way more than his actual salary, nearly like a multiple of his salary. And that is how he built much of his fortune back here in India.
"The average American cashier makes $20,230 a year, a salary that in a single-earner household would leave a family of four living under the poverty line."
20k is on the low side, but one should still consider their own income before having children, especially two.
One thing that nobody ever seems to point out in these discussions: Should we legally mandate that every job in the world must pay enough money to support a family of 4 as a single earner of the household? What about high school/college students, retirees, spouses of high earners, and other people who want a relatively low-skill job that doesn't pay that much? Should the kind of job they want be illegal because, someday, somebody who does have a family will take that job and then complain that it doesn't pay enough to raise their family?
True. But it goes to a broader social issue. Should a family of 4 where one parent is employed full time by a large organization be earning below the poverty line. Was it like that 10/20/40 years ago. Where will it be in another 10 years? What's the impact on our social fabric.
At the micro level as a rationale economic player you in theory should make that determination. At the macro level it's our job to decide whether we want one income families to be below the poverty line and what are the broader implications of that.
The problem with your suggested strategy is that societies that follow it are headed for evolution's recycle bin, to be replaced by societies that don't.
I don't want a world where people consider their own income before having children and find that they can't afford to have children and not live in poverty, and have to miss out on having children.
Or for that matter, three, since the statement seems to be assuming 3 children and one adult (if there was a second adult, why would it be a single-earner household if they are under the poverty line that way? Surely the other adult should at least be on welfare or disability...)
They should...but if everyone did that we'd have much less population growth. Most people, particularly lower classes, don't particularly care.
I don't have a citation, but it's kind of self-evident. At the very least, people don't expect a family to cost so much, and think if they're prepared for it beforehand they'll be fine. You can't be prepared for poverty with a family.
Wal-Mart’s customers expect a very broad array of goods, because they’re a department store, not a specialty retailer; lots of people rely on Wal-Mart for their regular weekly shopping. The retailer has tried to cut the number of SKUs it carries, but ended up having to put them back, because it cost them in complaints, and sales. That means more labor, and lower profits per square foot. It also means that when you ask a clerk where something is, he’s likely to have no idea, because no person could master 108,000 SKUs.
Having done a few years time in retail, I find this part a bit telling. I'm curious if the author has ever worked in a department store? Many department stores assign various employees to ....departments in the store. The actual SKU count you need to mentally juggle in your head is a fraction of what the entire store carries. Increasing the number of employees in a department and paying them better should give you a better knowledge on the floor of where something is if only because customers can find a department member. In my Wal-Mart it seems like you'd be lucky to find a department member in any particular department, except maybe automotive or electronics.
Economic realities notwithstanding about where the money comes from to hire more employees or pay them more of course.
Through ambiguous verbage, this author very carefully skirts an unfortunate fact which ruins his argument. And that is: Trader Joe's has a very high number of employees per square foot. TJs is swarming with employees. They're trained to do every task and can fill in for one another. My local TJs, a microscopic one and the smallest in DC by far, usually has over 15 employees, often 20, day and night. I know: I counted them.
I think that this guy is saying that Wal-Mart can't do what Costco does because it has more SKUs and thus a higher density of employees. But TJ's density is much higher still, and it pays like Costco does.
I have heard of this journalist before. Apart from the absolute lack of an explanation as to WHY Walmart cannot pay higher wages (spoiler - it's complicated!)
also, I find the link in the S.H.A.M.E. project of interest.
Meh. Either her content is substantially right or it's substantially wrong. Let's just debunk her theories if we don't believe her vs personally attacking her. This "She's a conservative activist from the heart of Koch!" is no different (or less offensive) than "She's a bleeding heart liberal from Berkeley!"
Except that WinCo has been expanding rapidly and directly competing against Wal-Mart. They also pay their employees more than Wal-Mart. They are only a grocery store, but they are competing.
Well written article, enjoyed it although I also noticed the much-higher margin Walmart has.
It's very obvious that Walmart allows less wealthy people to buy more. Paradoxically, the very people suffering from stagnant blue-collar wages are Walmart's customers.
Is this pretty much the market speaking and saying that Wal-Mart has a crumby business? Especially factoring in that a lot of people couldn't even work there without government subsidies in the form of food stamps, etc.
I don't get this "subsidy" argument. Bob pays $200 for his rent, and $150 for groceries. He applied for a job at Costco and was turned down, but Walmart offered him a job so he took it.
Without government benefits, he couldn't afford his rent and he couldn't afford his groceries. Without his job at Walmart, he'd be eligible for even more benefits. But somehow it's Walmart that's being subsidized, and not his grocer or his landlord? Not to mention Costco, who's paying him $0, while Walmart pays him something, at least.
The size of the SKU assortment has such a profound impact on so very many areas of the business, I would venture to say that if two retailers don't have a comparably sized SKU assortment, they're well-nigh incomparable.
1. Costco dropped the "absolute satisfaction guarantee"
on All of their products.
2. If you want to retun something; you need to talk with
the Angry Manager.
3. Now this was fine and dandy with electronics, but
it's a whole other story with grey market high end watches.
4. I try to pass this information along whenever I can.
5. I only use Costco for prescriptions. I try to use
someone else's card to by toilet paper.
6. Costco used to be great, but they need smart senior
management. I don't think you can take an angry employee,
and increase revenue. I've just seen bad marketing decisions over the last decade.
> Some stores cannot thrive unless they are within SHORT drives of many customers.
My prediction is that within ten years, you will be able to tell the success of upmarket stores by the number of electric car chargers in front of them. The wealthy has always found ways to reduce their costs in ways that poorer people cannot easily duplicate, like reduced banking fees to draw their business.
[+] [-] tokenadult|12 years ago|reply
There are plenty of other differences between the shopping experience at Wal-Mart and Costco. A peculiarity of local geography is that we find that the two Costco stores at our end of the Twin Cities metropolitan area are just never on our way to anywhere else, so we let our Costco membership lapse after just one year. For quite the same reason, we hardly ever shop at Wal-Mart. But we shop at Sam's Club (the Wal-Mart version of a warehouse store like Costco) all the time, simply because it is on my way to work and largely on the way to many of our other trips during the week. Today we built a trip to Aldi into our schedule while our daughter was at soccer practice about halfway from our house to that store. We love to minimize driving--driving costs both money and time. Some stores cannot thrive unless they are within SHORT drives of many customers. Some of those stores have to extract a lot of productivity out of each worker to pay the workers even minimum wage.
I still wonder when Amazon is going to go all-in in setting up major same-day delivery centers in most metropolitan areas in the United States. That could have a revolutionary influence on my shopping habits. And if robots can do more of the stocking of shelves, and eventually self-driving cars do most of the delivering, that business model could end up with huge market share. I'm very happy when workers at menial retail jobs are paid more--I have had such jobs (at Sears and at Target, many years ago). But they best gain opportunity to advance themselves economically when they also can save on their own consumer spending in retail stores. Everyone likes low prices day in and day out.
[+] [-] icelancer|12 years ago|reply
Many, now. Logistics is (and has been) a massively growing field when it comes to deployment of franchises of restaurants as well as groceries and general goods stores. There is hugely growing sentiment against unnecessary driving, partly due to rising fuel costs but I also hypothesize that media pressure of said fuel costs as well as innovation from Netflix etc. drive this signal as well. "Why leave the house when you don't have to" has farther reaching effects than simple DVD rentals.
Great post, BTW - and a very interesting subject indeed.
[+] [-] malandrew|12 years ago|reply
When adding to the cart, the user can choose to add products publicly or privately so that only non-personal products are broadcast to their neighbors.
[+] [-] thetrb|12 years ago|reply
[+] [-] jusben1369|12 years ago|reply
For the author's central point to hold true those numbers need to be more closely aligned. That is, they need to be roughly the same in % terms. They aren't, which means one or both of the players are doing something substantially different in their approach. Given that labor costs are the single largest expense for these types of business it's not unreasonable to reach the conclusion of those she's rebutting with this article. Namely that Walmart is overly maximizing profits based on the back of paying extremely low wages. To put it another way, if for some reason Walmart was told to bring it's margins in line with Costco the easiest way to do that would be to bring your wages up and keep your prices the same.
Let's do back of the envelope math based on the chart in the article. If Walmart had the margins of Costco rather than the current ones that would see it's profit dip from $15.6 billion to $7.53 billon. That in turn would "free up" $8 billion in what is now pure profit. With 2 million global employees you could pay them all $4K more. That's a 20% salary increase for the basic salary they highlighted of $20K per year.
I'm not bashing Walmart. I'm just pointing out that Costco seems to have made the decision to have meaningfully smaller margins than Walmart. Given where the bulk of their costs lie they must have had the conversation more than once about paying folks less to move those margins up to please Wall Street more. Yet they have decided not to do that. Perhaps it's simply because they believe the business benefit around being easier for them to be accepted in new communities (and thus grow) based on the real and perceived perception that they treat their workers well.
PS: Anecdotally Walmart opened near us two months ago. I have now been there 4 or 5 times. I am struck by just how many people there are working there on the floor. There seem to be too many whenever I'm there. They look bored and so congregate in groups and shoot the breeze. I couldn't get that out of my mind as the author kept stressing they really need a lot more employees.
[+] [-] markost|12 years ago|reply
In fact, a little known feature of Costco's business model is their ability to sell all their stock well before their suppliers require payment for goods (Net 30)? This means they have an effectively _negative_ cash conversion cycle, or in other words, their suppliers are paying to stock their products.
Everything about Costco's business model is backwards.
[+] [-] 1123581321|12 years ago|reply
According to the data in the article, Walmart would have the same profit margin as Costco if they spent $3,500 more per employee annually. Ignoring part-time workers, salary-exempt, benefits etc., this is an hourly wage increase of about $1.75, still well under what Costco pays.
[+] [-] dylangs1030|12 years ago|reply
Those people you see shooting the shit and slacking off are necessary. The reason why they're there is because if the store suddenly gets packed, they will be split up and given tasks. They're insurance. You can't not have them there, or you'll get customer complaints when they can't find someone to help them, there's too few lanes, etc.
And that's just during the day in front-end customer facing situations. They're constantly called back to inventory to do warehouse-type jobs, even if they're cashiers.
[+] [-] bokonist|12 years ago|reply
Whaaaa? The largest expense, by far, is most certainly cost of goods sold.
[+] [-] brownbat|12 years ago|reply
There's a floor, though, where that argument isn't as compelling. It's not like we're talking of dropping from 20% to 10% margins, here, Costco's 1.7% margins might not be sustainable, or might only be sustainable for a business with less fixed capital.
I mean, maybe you're right, maybe 1.7% isn't that floor yet, I'd just need more information.
But the last piece focused more on the fact that Walmart is in business relationships with more poor people than just its employees. So even if Walmart has poorly allocated its returns, I'd rather see those margins distributed to customers or foreign suppliers first, because my hunch is that the humanitarian impact would be greater on these groups, who I see as larger, poorer, and having fewer substitutes.
[+] [-] hearty779|12 years ago|reply
[+] [-] arnoldwh|12 years ago|reply
Maybe that's more more of a load problem? They are probably there for the peak rush periods, and I would imagine forecasting those accurately is almost impossible, so you operate with a buffer. Lower wages enable them to be more flexible in handling these peak loads.
In terms of your point about the financial impact, a quick look at the SG&A of Walmart (20%) shows a big difference vs. Costco's (~9%). I don't have the breakout of employee wages, but it does seem like it's definitely a more labor intensive model. Then again, they probably could afford to pay higher wages, but the problem is that customers haven't given them a financial incentive to do so. I feel like the point the author was trying to make was a good one...many people that write about these issues should acknowledge the different business models instead of just quickly pointing at Costco and saying the model works with higher wages.
[+] [-] idunno246|12 years ago|reply
Even though I generally wouldn't shop there, I have no issue with walmart, for exactly the reasons this author suggests I wouldn't
[+] [-] nsxwolf|12 years ago|reply
[+] [-] Afforess|12 years ago|reply
If people have problems with the wages Walmart pays they should stop attacking Walmart and go deal with the people who actually set the minimum wages: your congress critter.
[+] [-] tonydiv|12 years ago|reply
Understanding Costco by Coriolis Research (namely, Tim Morris). http://www.coriolisresearch.com/pdfs/coriolis_understanding_...
Some mind blowing facts:
1. They pay their employees $10-$17/hr as opposed to Walmart (as discussed in the article)
2. CEO earned 350k in 2012, only twice that of a store manager at Costco
3. Margins are razor thin. In fact, an employee got yelled at for selling something at a higher margin (even though all the products were successfully sold within a week)
4. ~40% of Californians have a membership
5. 30% of inventory is at the store within 8 hours
*Note: My employer is a consultant for Costco, and I might be too, so I'm definitely bias, but I love the company.
[+] [-] scottjad|12 years ago|reply
http://www.reuters.com/finance/stocks/officerProfile?symbol=...
[+] [-] nitid_name|12 years ago|reply
I seem to recall reading their markup is <17%, no more than one part in six.
[+] [-] orionblastar|12 years ago|reply
Walmart follows 'classical management' of negative reinforcement and cutting expenses down to the bone including salaries, benefits, and other stuff. They are willing to pay executives millions while letting most employees work for slave wages with little to no benefits to cut down on costs as much as possible.
Costco follows 'participatory management' in which management gets involved with the employees and empowers them to make their own decisions. Executives are not paid millions and their salaries are based on how well the company does to encourage growth. Employees are paid more so they will be more productive and with good benefits to take care of health problems and family problems so they don't interfere with work. If the company is losing money, they do job cost analysis to see what products and services cost more to support than the revenue they bring in, and then quality is improved on those services and products and if it cannot then those products and services get cut instead of the people and new products and services replace them.
Steve Jobs did this with Apple, cut out products and services that didn't bring in enough revenue to justify keeping them, cut his own salary as the iCEO, improved the quality of products and services or come up with new ones to replace them. Walmart and other 'classic management' companies just don't understand how to do that so they take it out on the employees instead.
[+] [-] xb95|12 years ago|reply
I'd argue that spending 0.01% of revenue on key executive compensation (which is the 'paying executives millions' you talk about) is irrelevant to Wal-Mart overall and how much they can or can't pay their workers. Even if you stripped the executive compensation and gave it to the workers (2.2m of them), you'd only be handing out $30 to each person. That's a few hours of work total, and amortized over a year? Not a factor at all in the grand scheme of things.
...
The article is well worth a read. It's interesting and insightful and discusses more interesting things like business models, target demographics, value-mindedness, etc. I recommend it if you can get it to load. (It was fine for me.)
[+] [-] calbear81|12 years ago|reply
I would argue that Walmart pays minimum wages because they can and their customer base doesn't really value the benefits of paying higher wages and 'participatory management' - primarily lower turnover and thus more engaged/invested employees who deliver better service and higher productivity. Walmart most likely sees their employees as replaceable and the average Walmart customer is driven by low prices and not great customer service. To that end, the lower the Walmart cost structure, the more margin they have to work with to stay competitive (without having to lower CEO salaries, etc. of course).
Costco and Trader Joe's are known for great customer service and easy return policies. Based on my observations, people who shop at Costco like to save money, but it's from a best value angle and not from an absolute cheapest I can get angle. The Costco consumer has to be willing to shell out an annual membership fee up front and you're buying in bulk which means you have to be able to pay for goods you use in the future. Trader Joe's wants to be the neighborhood store and that means they need happy employees, not employees who are thinking about how they're going to pay for the knee surgery they badly need.
I'm probably making broad generalizations of the different customer bases here but it's what I've personally observed.
[+] [-] hearty779|12 years ago|reply
http://insiders.morningstar.com/trading/executive-compensati...
Can you name one Fortune 500 company that doesn't pay executives millions? Facebook, Google, and Apple pay its executives millions, and yet its contracted janitors get low hourly rates. Where's your rage?
[+] [-] vasilipupkin|12 years ago|reply
[+] [-] netcan|12 years ago|reply
The number that caught my eye is Revenue/Total Employees. That brings home some realities of markets. Total revenue in the market is the amount consumers spend on groceries. Thats more or less constant. Wall Mart's low revenue/employee ($211k vs $620k) means they employ more people for every dollar of market share they have. This is an enormous difference. It implies that every time Costco win $1m in market share from Wal Mart, total employment drops by 3.1 people.
Aldi (and its slightly upmarket cousin, Liddel) serve a similar market segment to Wal Mart in Europe. Is suspect they do it with even higher revenue per employee. These store are all about labour efficiency.
This might be a "be careful what you wish for" scenario for retail workers and people concerned with wages at the lower rungs. Employers might be able to afford higher wages, but demand for those wages will go down. In that case, its hard to imagine wages really improving in the long term. Even if they did, total employment would be much lower and that would hit the lowest skill workers hardest. When you pay better wages, you can be choosier.
This may be taking it a little far but.. I think what we see running through this scenario is an example of how improved efficiency breeds wage inequality.
[+] [-] wffurr|12 years ago|reply
The benefits of improved efficiency and automation, as you have pointed out, skip over employees. Some of them accrue to customers in the form of lower prices, but largely they accrue to management and shareholders in the form of increased profits. Costco appears to be the exception that proves the rule, here.
In theory, efficiency and automation should be a net benefit to society, as we can then enjoy the same level of goods produced with less labor involved, but the uneven distribution of benefits causes lots of avoidable suffering on the part of laid-off workers.
A guaranteed basic income for all (as opposed to means-tested benefits like welfare and the EITC) would fix a lot of that. It would remove the suffering from losing your job, and give investors an incentive to automate even more, as now you would have to pay people quite a bit to motivate them to accept low-skill menial jobs.
We can fund such a basic income in part by dismantling the welfare state bureaucracy. No means testing makes distribution much simpler. The rest through higher taxes on income beyond the basic.
[+] [-] MikeCapone|12 years ago|reply
http://www.amazon.com/Sam-Walton-Made-In-America/dp/05535628...
[+] [-] kamaal|12 years ago|reply
According him, surprisingly enough they make money while customers don't bother to collect change, or when the cashiers don't have change they just leave it at them. They keep a track of how much change has collected like that hourly or at half-day and then they pocket that. The company doesn't lose money anyway, the customers give away the change like tip. But in the process these guys make a lot of money.
According to him, the money he makes through the change is actually way more than his actual salary, nearly like a multiple of his salary. And that is how he built much of his fortune back here in India.
[+] [-] coin|12 years ago|reply
20k is on the low side, but one should still consider their own income before having children, especially two.
[+] [-] ufmace|12 years ago|reply
[+] [-] jusben1369|12 years ago|reply
At the micro level as a rationale economic player you in theory should make that determination. At the macro level it's our job to decide whether we want one income families to be below the poverty line and what are the broader implications of that.
[+] [-] rwallace|12 years ago|reply
[+] [-] artsrc|12 years ago|reply
[+] [-] jlgreco|12 years ago|reply
Or for that matter, three, since the statement seems to be assuming 3 children and one adult (if there was a second adult, why would it be a single-earner household if they are under the poverty line that way? Surely the other adult should at least be on welfare or disability...)
[+] [-] loudmax|12 years ago|reply
[+] [-] dylangs1030|12 years ago|reply
I don't have a citation, but it's kind of self-evident. At the very least, people don't expect a family to cost so much, and think if they're prepared for it beforehand they'll be fine. You can't be prepared for poverty with a family.
[+] [-] cantankerous|12 years ago|reply
Having done a few years time in retail, I find this part a bit telling. I'm curious if the author has ever worked in a department store? Many department stores assign various employees to ....departments in the store. The actual SKU count you need to mentally juggle in your head is a fraction of what the entire store carries. Increasing the number of employees in a department and paying them better should give you a better knowledge on the floor of where something is if only because customers can find a department member. In my Wal-Mart it seems like you'd be lucky to find a department member in any particular department, except maybe automotive or electronics.
Economic realities notwithstanding about where the money comes from to hire more employees or pay them more of course.
[+] [-] tanzam75|12 years ago|reply
She means "hypermarket," where groceries are sold alongside general merchandise.
[+] [-] SeanLuke|12 years ago|reply
I think that this guy is saying that Wal-Mart can't do what Costco does because it has more SKUs and thus a higher density of employees. But TJ's density is much higher still, and it pays like Costco does.
[+] [-] onoj|12 years ago|reply
also, I find the link in the S.H.A.M.E. project of interest.
http://shameproject.com/profile/megan-mcardle/
[+] [-] jusben1369|12 years ago|reply
[+] [-] hearty779|12 years ago|reply
[+] [-] vondur|12 years ago|reply
http://business.time.com/2013/08/07/meet-the-low-key-low-cos...
[+] [-] zwieback|12 years ago|reply
It's very obvious that Walmart allows less wealthy people to buy more. Paradoxically, the very people suffering from stagnant blue-collar wages are Walmart's customers.
[+] [-] bsbechtel|12 years ago|reply
[+] [-] RandyH|12 years ago|reply
http://www.motherjones.com/mojo/2013/06/report-walmart-force...
[+] [-] twoodfin|12 years ago|reply
Without government benefits, he couldn't afford his rent and he couldn't afford his groceries. Without his job at Walmart, he'd be eligible for even more benefits. But somehow it's Walmart that's being subsidized, and not his grocer or his landlord? Not to mention Costco, who's paying him $0, while Walmart pays him something, at least.
[+] [-] jpitz|12 years ago|reply
[+] [-] mbesto|12 years ago|reply
[+] [-] marincounty|12 years ago|reply
2. If you want to retun something; you need to talk with the Angry Manager.
3. Now this was fine and dandy with electronics, but it's a whole other story with grey market high end watches.
4. I try to pass this information along whenever I can.
5. I only use Costco for prescriptions. I try to use someone else's card to by toilet paper.
6. Costco used to be great, but they need smart senior management. I don't think you can take an angry employee, and increase revenue. I've just seen bad marketing decisions over the last decade.
[+] [-] mncolinlee|12 years ago|reply
My prediction is that within ten years, you will be able to tell the success of upmarket stores by the number of electric car chargers in front of them. The wealthy has always found ways to reduce their costs in ways that poorer people cannot easily duplicate, like reduced banking fees to draw their business.