Costco vs. Wal-Mart

Some of you may have noticed that the two big box retailing champs, Wal-Mart and Costco, have differing political profiles. The Wal-Mart and the Walton family are associated with the Republican Party and union busting, while Costco and CEO Jim Sinegal are associated with the Democrats and are much more employee-friendly. Here is an ABC News puff-piece on Costco and Sinegal.

In fact there is a big difference in worker pay. Costco pays about $17 per hour and Wal-Mart pays about $10 per hour, according to Tim Worstall.

Well, that does it. Clearly Costco is higher and nobler, more sensitive and more compassionate. But how does Costco do it?

Costco has sales of $51 billion, 110,000 employees (45% part time, similar to WalMart isn't it?) and WalMart has sales (in North America) of $191 billion and 1.3 million associates. So Costco has sales of some $465,000 per employee and WalMart $147,000 per employee.

And that is the point. Costco is a warehouse store, where you buy huge sacks of stuff rather than onesies and twosies. It has a business model that requires a lot fewer employees. And when Costco delivers about 3 times the sales per employee as Wal-Mart they can afford to pay more to each employee.

But that raises the question. Is it better for Costco to hire a few people at high wages or for Wal-Mart to hire a bunch of people at lower wages? You make the call.

Unfortunately, whatever call you make, ultimately the market will decide. Because it answers the big question, the only question that really matters: what do the customers want? Do they want to buy at a warehouse store or at a Wal-Mart big box?

By the way, even though Costco is said to be a friend of labor, only 18 percent of Costco employees are unionized.