Costco (NASDAQ:COST) is President Obama’s retailer of choice. Why? The company’s wage and employee practices mirror what the president encourages in terms of employee management — closing the gap between the wealthy and the poor. Obama is set to hit Costco Wednesday morning, the day after his state of the union speech, and there he is expected to praise Costco’s wage practices and highlight the store as a good example of what other retailers should follow.
Market Watch reported on Obama’s visit Monday and explained the differences between big-box retailers like Costco and Wal-Mart (NYSE:WMT), highlighting why the president favors the wholesale store. Costco pays an average of just under $21 an hour, offers health benefits to most employees, and some of its workforce is unionized. Wal-Mart, on the other hand, has long been criticized for its meager wages, paying its employees an average of under $13 a hour, offering sparse healthcare benefits, and denouncement of any kind of unionization. See the difference?
Costco is Obama’s go-to retailer to praise because its progressive style of management mimics what the president has been calling for all along — higher wages and benefits that help offset the growing gap in America between the rich and the poor. Costco executives also support an increase in the minimum wage, have vocalized their approval of Obamacare, and have contributed to both of Obama’s presidential campaigns. Sounds like a match made in heaven.
The interesting point about the comparison between Wal-Mart and Costco is that although the latter is significantly smaller in size than the world’s largest retailer, it has actually proven itself more successful than Wal-Mart wholesale arm, Sam’s Club. Market Watch reports that although there are currently 175 Sam’s Club stores in the U.S., compared to Costco’s 450, Costco generates one-third more annual revenue, and it hasn’t dropped any jobs. Sam’s Club, on the other hand, announced last week that it would cut 2,300 jobs.
Both Costco and Sam’s Club are wholesale retailers that charge customers annual membership fees, but although the stores look similar from the outside in, Costco’s approach to employment is significantly different than Sam’s Club’s. Costco maintains warehouses in higher-income suburban areas, doesn’t hire as many workers to roam the aisles, isn’t worried about warehouse aesthetics, and is a champion of the higher wage. Sam’s Club employees are paid less, but they are made more available to help customers, and the chain still caters to the cost-conscious crowd, much more so than Costco does.
That’s where the president comes in. Obama praises Costco because he believes the retailer serves as an example to prove the point that companies can succeed, even if they spend significant sums of money paying higher wages and not cutting corners when it comes to employee management. Costco isn’t afraid of unions because it doesn’t feel like it needs to be, and it puts a premium on worker satisfaction. Don’t forget, the retailer was one of the only stores that refused to open its doors on Thanksgiving because it stood by its commitment to allow its employees to enjoy the holiday.
So, Costco currently has a lot of things going for it, especially now that Obama is on Team Costco. Its responsibility to its employees is clearly paying off, and may effectively encourage other similar styles of management from retailers in the future.