Wal-Mart: The High Cost of a Low Price

We finally had a chance to see Wal-Mart: The High Cost of a Low Price. For a great review of it, see Sadie's blog. I'll try not to repeat the points she made ... as she did a nice job.

It's not that Wal-Mart tries to make money. Money drives our economy. It's not they can't provide healthcare for all their workers. Many companies have that problem. It's not that they are successful. There are a lot of successful companies that do not garner the negative attention Wal-Mart does. It's not that they offer inexpensive products. After all, who isn't looking for a bargain?

So what is the problem with Wal-Mart?

• -- They are the most successful retailer and one of the most profitable companies in the U.S., yet they do not pay their workers a living wage. Associates and cashiers, their most common jobs make wages well below the poverty line.


• -- They have agressive union busting practices.


• -- They have unsafe environmental practices ... some of which are highlighted in the movie.


• -- They champion themselves as a marketer of "Made in the USA" products while being the largest importer of Chinese products. Many of which are produced with slave labor.


• -- They have substandard healthcare offerings and actually encourage their employees to get assistance from the government as a substitute.


• -- Wal-Mart seeks and receives over a billion dollars in incentives to come into towns. The result of which is a double-whammy. Cities are subsidizing the failure of their own businesses because Wal-Mart drives out small retailers.


• -- They have been guilty of management practices that are racist and that descriminate against women.

For a more detailed listing of Wal-Mart's problems: The Real Facts about Wal-Mart

The odd thing about it is that it doesn't have to be this way. Costco is just one example of a company that is doing it differently ... and successfully. From The Costco Challenge: An Alternative to Wal-Martization? (July 5, 2005):

Costco Wholesale Corp., now the fifth-largest retailer in the U.S. While Wal-Mart pays an average of $9.68 an hour, the average hourly wage of employees of the Issaquah, Wash.-based warehouse club operator is $16. After three years a typical full-time Costco worker makes about $42,000, and the company foots 92% of its workers’ health insurance tab.

How does Costco pull it off? How can a discount retail chain pay middle-class wages and still bring in over $880 million in net revenues? And, a cynic may ask, with Wal-Mart wages becoming the norm, why does it bother?

A number of factors explain Costco’s success at building a retail chain both profitable and fair to its workers. But the basic formula is one the labor movement has been advocating for decades: a loyal, well-compensated workforce means a more efficient and productive one.

Though only about 18% of Costco’s total workforce is unionized, union representation creates a ripple effect and helps determine labor standards in all stores. The Teamsters represent about 15,000 workers at 56 Costco stores in California, New York, New Jersey, Maryland and Virginia. Workers are covered by West coast and East coast contracts, negotiated in February and April of last year.

“The agreements lock in wage and benefits packages that are the highest in the grocery and [discount] retail industries,” said Rome Aloise, chief IBT negotiator for Costco and Secretary-Treasurer of Local 853 in San Leandro, Calif.

Costco passes on similar compensation packages to its non-union workers; the contracts act as templates for other stores’ employee handbooks.

“The union contracts raise the bar and set the standard for all employees,” explained Aloise. “Still, while the company extends wage and pay raises to non-union employees, only union members enjoy benefits like seniority-based promotions, a grievance procedure and minimum hours for part-time workers,” he added.

Strong union representation isn’t the only reason Costco jobs are so well compensated; the company itself has an unusually forward-looking corporate philosophy.

Costco CEO Jim Senegal has said: “We pay much better than Wal-Mart. That’s not altruism. It’s good business.”

Chief Financial Officer Richard Galanti explained: “From day one, we’ve run the company with the philosophy that if we pay better than average, provide a salary people can live on, have a positive environment and good benefits, we’ll be able to hire better people, they’ll stay longer and be more efficient.”

A 2004 Business Week study ran the numbers to test Costco’s business model against that of Wal-Mart. The study confirmed that Costco’s well-compensated employees are more productive.

...By compensating its workers well, Costco also enjoys rates of turnover far below industry norms. Costco’s rate of turnover is one-third the industry average of 65% as estimated by the National Retail Foundation. Wal-Mart reports a turnover rate of about 50%.

... Other analysts of the retail industry agree that happier, well-compensated workers help generate bigger profits. George Whalin, president of Retail Management Consultants in San Marcos, Calif., disagrees with many of Wal-Mart’s critics, but said: “There’s no doubt Wal-Mart and many other retailers could do a better job taking care of their employees. The best retailers do take care of their employees — Nordstrom’s, Costco, The Container store — with fair pay, good benefits and managers who care about people. You have fewer employee issues, less turnover and more productivity. It lessens costs to the company.”

... After California Costco workers ratified their Teamster contract last March, CEO Jim Sinegal said Costco workers are “entitled to buy homes and live in reasonably nice neighborhoods and send their children to school.”

“When companies like Wal-Mart are setting the standard, we have to ask: Do we want to live in a country where the largest employer pays below poverty-level wages, whose workers cannot afford health care?” says Paul Blank, chief spokesperson of Wake Up Wal-Mart, the United Food and Commercial Workers’ new campaign to change the company’s practices. “Or do we want Americans to enjoy a decent income and a sense of security in return for their work?”

Costco v. Wal-Mart: How They Stack Up

Global Workforce
Wal-Mart: 1.6 million associates
Costco: 113,000 employees

U.S. Workforce
Wal-Mart: 1.2 million
Costco: 83,600

U.S. Union Members
Wal-Mart: 0
Costco: 15,000

U.S. Stores
Wal-Mart: 3,600
Costco: 336

Net Profits (2004)
Wal-Mart: $10.5 billion
Costco: $882 million

CEO Salary + Bonus (2004)
Wal-Mart: $5.3 million
Costco: $350,000

Average Pay
Wal-Mart: $9.68/hour
Costco: $16/hour

Health Plan Costs
Wal-Mart: Associates pay 34% of premiums + deductible ($350-$1,000)
Costco: Comprehensive; employees pay 5-8% of premiums

Employees Covered By Company Health Insurance
Wal-Mart: 48%
Costco: 82%

Employee Turnover (estimate)
Wal-Mart: 50%
Costco: 24%

As citizens, we are supposed to have a say in how we are governed. But we all know how that turns out usually. Money is ultimately the only thing that decides anything. So if it has to be that way, then vote with your money. If you continue to shop at Wal-Mart despite the preponderance of evidence of their practices, then we know how you are voting. And that is your right. But don't do it without knowing the truth. Don't believe me. Don't believe the director of this movie. Research for yourself. And then decide. We can decide how companies behave. They listen to our money. And there is some evidence that we are having some effect on Wal-Mart's practices. But there is a lot more to be done.