The Walmart way is not the only way

To follow up on yesterday’s post about the Black Friday Walmart strikes, I wanted to write about an argument that Walmart and its apologists frequently make — namely, that so far as retail work goes, low wages are the nature of the beast, particularly for retailers that emphasize low prices. But that isn’t the way it has to be. Indeed, for some notable retail chains, that isn’t the way it is at all.

Two of my favorite stores in the world are Costco and Trader Joe’s. Like Walmart, they make a point of offering rock-bottom prices. But in total contrast to Walmart, which exploits its employees and sells cheap crap, Costco and Trader Joe’s feature high-quality products and treat their employees well. I love Costco and Trader Joe’s both for their delicious food items, especially their cheese and chocolate (the chocolate truffles I recently bought at Costco were were frighteningly good, and extremely popular at my family’s Thanksgiving feast this year). I also go to Costco to buy dog food (their house brand is very high quality, and astonishingly cheap) and to fill my prescriptions. Generic meds at Costco are dirt cheap, which has been a godsend for me during times when I’ve lacked health insurance.

I’ve often wondered how Costco and Trader Joe’s manage to simultaneously provide high quality and low prices, while treating their employees decently in the bargain. Recently I came across an article from earlier this year in the Harvard Business Review which explains why. It’s written by Zeynep Ton, a visiting assistant professor at the Sloan School of Management at MIT. Ton looked at the practices of four retailers which not only have excellent labor records but also boast “the lowest prices in their industries, solid financial performance, and better customer service than their competitors.”

Those retailers are Costco and Trader Joe’s; QuikTrip, an American convenience store chain; and Mercadona, a Spanish supermarket. Here’s how employee compensation at these companies stacks up, vs. the competitors:

Employees of these retailers have higher pay, fuller training, better benefits, and more-convenient schedules than their counterparts at the competition. Store employees earn about 40% more at Costco than at its largest competitor, Walmart’s Sam’s Club. At Trader Joe’s, the starting wage for a full-time employee is $40,000 to $60,000 per year, more than twice what some competitors offer. The wages and benefits at QuikTrip are so good that the chain has been named one of Fortune’s “100 Best Companies to Work For” every year since 2003. All of Mercadona’s employees are permanent, and more than 85% are salaried full-timers.

How can these retailers afford to pay their employees so much more and still remain competitive? Ton found that with these retailers, there is a sort of “virtuous circle” in effect. A high labor budget leads to adequate staffing levels and high-performing employees, which in turn leads to good operational execution, resulting in high sales and healthy profits. By contrast, retailers like Walmart are stuck in a vicious cycle, where low labor budgets lead to poorly trained, poorly motivated, understaffed workforces, which then leads to poor operational execution, all too predictably resulting in poor sales and razor-thin profit margins.

Here are more of the specifics of what Ton found:

— Investing in employees pays off. Retail work is much more complex than you might think, and well-paid, well-trained employees will perform much better at job functions like stocking products, deciding where to place products (which is surprisingly important), and answering customer’s questioners. Stores which perform better at tasks like these tend to be significantly more profitable.

— Investing in employees tends to lower turnover, which reduces recruiting and training costs.

— The business models of the four retailers Ton studied differs from the standard one. They offer fewer products, which lowers prices and simplifies the operating environment for store employees, causing them to be more efficient.

— The four retailers Ton studied cross-train their employees, so that employees can be kept busy doing other things (taking inventory rather than checking out customers, for example) during slow business periods. This boosts morale by alleviating the need for the employer to lay off employees or cut their hours.

— These retailers also streamline and standardize as many processes as possible, so as to eliminate waste. For example, Costco and Trader Joe’s purchase products directly from the manufacturers and get them into stores via their own distribution centers.

— They let employees make small decisions, such as how much of an item to order for their store. There are certain things that local employees will have a better handle on than the regional folks.

Most of this stuff is not rocket science, and many of these practices could easily be adapted by other retailers, without too much difficulty. As for the rest, well, it’s true that it would be a major break with standard practices if retailers began offering far fewer products than they do currently. But would that be so bad? Who needs fifty different kinds of toothpaste, anyway? There’s even a body of research that suggests that that kind of choice overload makes us more anxious rather more happy.

Even without changing its basic model, Walmart could simply increase wages without negatively affecting consumers all that much. Researchers at the Center for Labor Research and Education at the University of California at Berkeley recently found that if Walmart were to increase the minimum wage paid to all its workers to $12 per hour, and passed 100% of the cost to consumers, it would cost the average Walmart consumer only $12.49 per year.

I’m certain that Costco and Trader Joe’s, like every workplace, have their share of problems. By no means do I mean to suggest that they are ideal employers. But I have to say, my shopping experiences there have been uniformly pleasant. Their workers, from the people stocking the shelves at Trader Joe’s to ladies offering samples of tasty treats at Costco, have been friendly and helpful. Some of them even seem to be having fun.

This a notable contrast with another retailer where I regularly shop, albeit guiltily, because I know they don’t treat their employees much better than Walmart does. This retailer — for the purposes of this post I’ll call them MoreGet — tends to be so understaffed that when I need help, locating an employee who can assist me can be a challenge. And even when I manage to get a hold of one, they frequently give me the wrong information. I don’t blame the employees, because they clearly seem overworked and overwhelmed, and I’m assuming undertrained as well. Wouldn’t these employees be doing their job a lot better if their employers paid them more, trained them better, and treated them like human beings? And wouldn’t we as customers be enjoying a far more satisfying shopping experience, and be spending many more of our hard-earned dollars there as a result? I know I would. Is this simple lesson so hard for the nation’s retailers to get?

(Note: this post has been updated to reflect that Walmart is no longer spelled with a hyphen between the l and the m. D’oh!)

Kathleen Geier

Kathleen Geier is a writer and public policy researcher who lives in Chicago. She blogs at Inequality Matters. Find her on Twitter: @Kathy_Gee