This is not a fair comparison, is it? Costco, as noted above, competes only with the Sam's Club division of WalMart. Also, what is the real number to look at? Margins/Profit-%? or Income? I would think the former?
I don't have a position on the above, but here is what BW says:
http://www.businessweek.com/magazine/content/04_15/b3878084_mz021.htm
> Surprisingly, however, Costco's high-wage approach actually beats
> Wal-Mart at its own game on many measures. BusinessWeek ran through
> the numbers from each company to compare Costco and Sam's Club, the
> Wal-Mart warehouse unit that competes directly with Costco. We found
> that by compensating employees generously to motivate and retain good
> workers, one-fifth of whom are unionized, Costco gets lower turnover
> and higher productivity. Combined with a smart business strategy that
> sells a mix of higher-margin products to more affluent customers,
> Costco actually keeps its labor costs lower than Wal-Mart's as a
> percentage of sales, and its 68,000 hourly workers in the U.S. sell
> more per square foot. Put another way, the 102,000 Sam's employees in
> the U.S. generated some $35 billion in sales last year, while Costco
> did $34 billion with one-third fewer employees.
>
> Bottom line: Costco pulled in $13,647 in U.S. operating profit per
> hourly employee last year, vs. $11,039 at Sam's. Over the past five
> years, Costco's operating income grew at an average of 10.1%
> annually, slightly besting Sam's 9.8%. Most of Wall Street doesn't
> see the broader picture, though, and only focuses on the up-front
> savings Costco would gain if it paid workers less. But a few analysts
> concede that Costco suffers from the Street's bias toward the
> low-wage model. "Costco deserves a little more credit than it has
> been getting lately, [since] it's one of the most productive
> companies in the industry," says Citigroup/Smith Barney retail
> analyst Deborah Weinswig. Wal-Mart spokeswoman Mona Williams says
> that Sam's pays competitively with Costco when all factors are
> considered, such as promotion opportunities.
>
> PASSING THE BUCK. The larger question here is which model of
> competition will predominate in the U.S. Costco isn't alone; some
> companies, even ones like New Balance Athletic Shoe Inc. that face
> cheap imports from China, have been able to compete by finding ways
> to lift productivity instead of cutting pay. But most executives find
> it easier to go the Wal-Mart route, even if shareholders fare just as
> well either way over the long run.
>
> Yet the cheap-labor model turns out to be costly in many ways. It can
> fuel poverty and related social ills and dump costs on other
> companies and taxpayers, who indirectly pick up the health-care tab
> for all the workers not insured by their parsimonious employers.
> What's more, the low-wage approach cuts into consumer spending and,
> potentially, economic growth. "You can't have every company adopt a
> Wal-Mart strategy. It isn't sustainable," says Rutgers University
> management professor Eileen Appelbaum, who in 2003 edited a vast
> study by 38 academics that found employers taking the high road in
> dozens of industries.
>
> Given Costco's performance, the question for Wall Street shouldn't be
> why Costco isn't more like Wal-Mart. Rather, why can't Wal-Mart
> deliver high shareholder returns and high living standards for its
> workforce? Says Costco CEO James D. Sinegal: "Paying your employees
> well is not only the right thing to do but it makes for good
> business."
>
> Look at how Costco pulls it off. Although Sam's $11.52 hourly average
> wage for full-timers tops the $9.64 earned by a typical Wal-Mart
> worker, it's still nearly 40% less than Costco's $15.97. Costco also
> shells out thousands more a year for workers' health and retirement
> and includes more of them in its health care, 401(k), and
> profit-sharing plans. "They take a very pro-employee attitude," says
> Rome Aloise, chief Costco negotiator for the Teamsters, which
> represents 14,000 Costco workers.
>
> In return for all this generosity, Costco gets one of the most
> productive and loyal workforces in all of retailing. Only 6% of
> employees leave after the first year, compared with 21% at Sam's.
> That saves tons, since Wal-Mart says it costs $2,500 per worker just
> to test, interview, and train a new hire. Costco's motivated
> employees also sell more: $795 of sales per square foot, vs. only
> $516 at Sam's and $411 at BJ's Wholesale Club Inc. (BJ ), its other
> primary club rival. "Employees are willing to do whatever it takes to
> get the job done," says Julie Molina, a 17-year Costco worker in
> South San Francisco, Calif., who makes $17.82 an hour, plus bonuses.
>
> MANAGEMENT SAVVY. Costco's productive workforce more than offsets the
> higher expense. Its labor and overhead tab, also called its selling,
> general, and administrative costs (SG&A), total just 9.8% of revenue.
> While Wal-Mart declines to break out Sam's SG&A, it's likely higher
> than Costco's but lower than Wal-Mart's 17%. At Target (TGT ), it's
> 24%. "Paying higher wages translates into more efficiency," says
> Costco Chief Financial Officer Richard Galanti.
--ravi
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