Costco and the Mutability of Business Laws

Costco has a very different take on business, from earnings to wages. The entrepreneur will seek many different ways to succeed.

Sol Price, Costco's founder, once said: "My 'secret' is so simple that I'm reluctant to speak openly about it for fear of appearing stupid. I sell things as cheaply as I can."
Eighty percent of the company's gross profit actually comes from the membership fees (between $55 to $110) from its 64 million members, roughly $1.5 billion annually. Nearly 90% of its customers renew their membership every year. So they sell as cheaply as possible and make money on access to the store!

And wages? With all the talk about the pros and con of the minimum wage? On average, Costco pays its workers about $20.89 an hour (in contrast to Wal-Mart which pays its full-time employees $12.67). 80% Costco employees have company-sponsored health insurance. About 90% of its employees have retirement plans. In 2009, when the recession hit the United States, Costco CEO Jim Senegal approved a $1.50-an-hour wage increase.

As a result, employees rarely leaves. The turnover rate of employees who have been there over a year is 5%. Turnover rate of Costco executives is even lower at 1%. That way, the company saves quite a bit in having to train new employees and its rate of theft by employee is extremely low.

Now the shocker: In 2006, Costco generated $21,805 in operating profit per employee as compared to $11,615 at rival Sam's Club, which paid its employees much lower wages. 21,805 to 11,615! Wayne Cascio of University of Colorado at Denver says ,"Costco’s stable, productive workforce more than offsets its higher costs ... These figures challenge the common assumption that labor rates equal labor costs. Costco’s approach shows that when it comes to wages and benefits, a cost-leadership strategy need not be a race to the bottom."