Do you think the difference in salaries between Costco and Sam’s Club really makes a difference? It seems that it does. According to an article on AllBusiness.com, it makes a surprising amount of difference and can be quite a good lesson for other businesses.
The average wage at Sam’s Club is $11.00 per hour, whereas Costco’s average is $17.00 per hour. Of course there are big differences in other benefits, including health care coverage, as well as intangible items like training, management and company culture in general that need to be taken into account as well. However, it does seem that most everyone agrees that Costco is much ahead of Sam’s Club in all of those respects too. So, it probably comes as no big surprise that Sam’s Club has a higher employee turnover of between 20% and 50% each year, but Costco loses just 6% to 20% of its employees per year (this is employees that actually quit). What that means, according to the article, is that Sam’s Club spends far more – 350% more – in recruiting, hiring and training costs when compared to Costco.
Wow, that is a huge difference! So, even though Sam’s Club is saving on salaries, they probably aren’t really saving anything in employment costs in the long run because of the constant need to hire and train new people. And as we all know, anytime you lose employees it is very costly to replace them, sure, but you always lose any knowledge that they had gained in their time working at the company. But maybe at Sam’s Club that isn’t such a big deal because they hire the employees that have little skills and are not highly motivated.
Another way that the article’s author compares how this difference in salary seems to affect the two stores is through sales. Costco, with the higher-paid employees that stay in their jobs longer (and are most likely better trained, happier, and more knowledgeable about the store), sales average $814 per square foot. However, at Sam’s Club, with their high turn-over (and likely less motivated, happy, and knowledgable employees) has a sales average of just $586 per square foot. That is a shocking 50% increase (almost) per square foot in average sales at Costco.
Obviously, things like benefits and the overall company culture make a big impact too, so the differences aren’t all down to higher salaries at Costco. Of course, obviously it helps. If you have more money to pay for an employee, you are much more likely to attract a better class of employee; one that has more to offer the company. Starbucks is another good example of how big an impact benefits and non-monetary policies can make can on employee loyalty. Employees love working there, even though they don’t have exceedingly high salaries, because of the other benefits such as health insurance and flexible work schedules.
Looks like if Sam’s Club really wants to compete with Costco, they should consider a little bit of an increase in salaries, but also they really need to work on their other benefits. Company culture can go a long way in making employees happier, and doesn’t need to take tons of money to improve. But then, maybe they don’t really care about that because they’re too used to the Walmart way of doing business.
For the full article, including links to the research used for the numbers: