Costco vs. Wal-Mart

Slate asks why their labor practices are so different

Over at Slate, Liza Featherstone asks a good question: Why doesn’t Wal-Mart pay its employees as well as Costco does?

Costco’s stock, after all, has left Wal-Mart’s in the dust over the last few years and it’s gotten reams of good press. We know what Wal-Mart’s (deservedly) gotten.

Featherstone doesn’t gloss over the fact that Wal-Mart’s low profit margins (the amount of profit it makes for every dollar of sales) are actually nearly twice those of Costco’s. But the bad PR clearly takes a toll:

Probably the worst publicity Wal-Mart has received for its employment practices was in 2004 and 2005. During these two years, developments in the sex-discrimination suit drew attention to its plaintiffs’ charges; numerous communities blocked Wal-Mart from expanding stores; many news stories exposed child labor, overtime abuses, and exploitation of undocumented immigrants; labor and community groups were constantly picketing the retailer; and two well-funded national organizations formed with the express purpose of publicizing Wal-Mart’s crimes against its workforce. All of this may have had some effect: From Jan. 1, 2004, to Jan. 1, 2006, Wal-Mart’s stock was down 9.7 percent. Costco’s went up an impressive 37 percent during this time.

We’d note that Wal-Mart’s labor policies aren’t the only reason people have beef with the Arkansas giant. Don’t forget about its effect on independent retailers, its tax subsidies, its trade practices, its traffic-snarling stores, and on and on.

But her point is a good one: Wal-Mart’s cut-throat focus on costs got it to the top, but at the expense of its employees. Some of these other things might have been overlooked or at least mitigated if it paid its workers well—and didn’t prevent them from organizing, something Featherstone credits with helping influence Costco’s labor-friendly policy.

She also points to Costco’s CEO and co-founder Jim Sinegal as the prime mover for employees. And that’s right. Sinegal thinks his employees ought to be treated well—able to earn a decent living (unsubsidized by the government).

Talk about old-fashioned.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.